Plastic Capital: Credit Card Debt Financing Among Startups

Abstract

This paper examines the increased use of credit cards for debt financing among startups. Credit cards are useful for startups because of their near-universal acceptance, accessibility and anonymity. But an increasing number of startups are relying exclusively on credit card debt for financing, which can have high carrying costs relative to traditional business loans. Using the Kauffman Firm Survey data several models are developed that analyze the differences in survival rates among startups depending on how heavily they rely on credit card debt for funding in their first four years in operation.

Keywords: bootstrapping, credit card debt, Kauffman Firm Survey, startups

JEL Classification: M19