Credit card debt threatens health of start-ups

According to a new study by the Ewing Marion Kauffman Foundation, while credit card debt often fills startup firms’ equity gap, it reduces the likelihood that a new business will survive its first three years of operation.

The results from this new study, The Use of Credit Card Debt by New Firms, suggest that every $1,000 increase in credit card debt increases the probability a firm will close by 2.2 percent.

More than half of all new firms rely on debt financing when they begin operations, and credit cards appeal to a vast majority of small businesses in their first year of business (about 58 percent).

“Credit card debt alone doesn’t determine how stable a business will be, but it does appear to be a significant influencer in the company’s probability of survival,” added Litan.

From the Kauffman Foundation

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