Don’t charge ahead

During the past year, many consumers and business owners have seen an increase in minimum payments on their credit cards as a result of the Bankruptcy Abuse and Consumer Protection Act of 2005. The increase will have a significant impact on women business owners because, according to new data from the Center for Women’s Business Research, more than half, or 52 percent, use credit cards as their main source of financing. This research also shows that during the intermediate stages of their businesses (four to 10 years), women’s use of business credit cards reaches its peak.

Women-owned businesses are an important and growing economic force in the United States, employing more than 19 million people and generating $2.5 trillion in sales, according to the Center for Women’s Business Research.

This holds especially true here in Washington State. U.S. Census Bureau data indicates that just over 280,000 privately held women-owned firms in Washington make up approximately 60 percent of all privately held firms. And, according to CWBR, women-owned businesses in the state generated $36 billion in sales and employed more than 250,000 people last year.

It is critically important that women are aware and knowledgeable about all forms of financing for their businesses. Instead of reaching for their credit cards, women business owners should consider three options.

• establishing and utilizing a small business line of credit;

• borrowing against a home equity line of credit; and

• equipment leasing.

Establish and utilize a small business line of credit. The small business line of credit provides flexibility to manage changing cash flow needs. It basically provides a small business owner with a "draw" that can be borrowed against an established limit, repaid and re-borrowed as necessary, thus improving overall cash flow. A line of credit, coupled with a business free-checking account, allows low monthly payments to be withdrawn automatically, saving the small business owner time and money.

Borrow against a home equity line of credit. This allows a business owner to leverage her home and borrow up to 85 percent of the entire amount of the home’s appraised value. The ability to lock in low fixed rates and the options of low interest-only payments make the home equity line of credit an alternative that continues to work for the small business owner throughout the life of the loan.

Lease equipment. If new equipment is required for a small business, equipment leasing may be the right choice. Leasing helps a business retain cash while providing the benefit of obtaining the most up-to-date equipment for a finite period. When the lease period is up, the equipment can then be purchased outright, often at a reduced price, or replaced with the next generation of equipment. Leasing can be easy on a business’s cash flow since it often requires no down payment, offers 100 percent financing and can include extras such as shipping, installation and training. Anything ranging from office furniture, production equipment, computers to vehicles, fall into the leasing realm. Tax benefits may result as well as businesses may reduce taxable income by increasing deductions.

Credit card minimum payments are here to stay, but they should not become a burden for small and women-owned businesses. With several opportunities to improve cash flow and tax advantages available, small businesses owe it to themselves to learn more about each and work with financial experts to create a financing plan that makes the most sense for their business.