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Despite risks, many start-ups rely on credit cards

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By Juergen Kneifel
Herald Columnist
Lance Miller and Bob Hamre are two local entrepreneurs with credit cards and a vision for their business in Everett.
They had both worked in physical therapy and sports training for several years when they noted that there was a significant gap in services for clients; it was a gap that proved to be an opportunity for the launch of their new business.
So how did they fund the majority of their startup? In August 2007 they pooled resources and drew significant funds from their credit cards to open Engineered Sports in Everett.
They aren't alone. Thirty-one percent of respondents to the National Small Business Association's 2012 Access to Capital survey reported using credit cards to finance their company in the previous 12 months to meet capital needs.
The same survey found that small businesses ranked credit cards second-to-last in terms of which lending source best serves the small business community. That may be because if your business has a slow quarter and you fall behind on your payments, your personal credit rating and your ability to borrow are at risk.
For Miller and Hamre the risk paid off. The co-founders saw the need for a holistic approach to injury rehabilitation that integrated physical therapy with personal training and education that would eventually help patients to avoid injury.
"We set a new standard in Snohomish County by establishing the first integrated performance training facility incorporating physical therapy, sports performance, nutrition, soft-tissue specialization and education under one roof," Miller said.
Now, while the typical home-based small business owner doesn't need much capital to start out, it is quite common for many small business start-ups to fund their enterprise with whatever cash may be available in personal savings, a 401(k), borrowing against equity in their home and, yes, even credit cards.
According to Greg Starup, vice president and senior relationship manager for Coastal Community Bank in Everett, the next plan of attack may also involve seeking loans from friends and family, or perhaps taking on a partner or inviting an investor to take an equity position in the business. Trade credit was also noted as a viable alternative.
"It's quite common for small businesses to launch with some level credit card borrowing. This may actually be a reasonable approach, as long as it is very short-term and a manageable balance in relation to the cash flows," Starup said.
"Once the business has a track record of cash flows and a demonstrated record of success, these owners will often seek out an SBA loan that consolidates the various sources of debt into one convenient loan," added Starup.
What I've observed over the years is that many business owners seem motivated to keep their business close and personal, so the notion of answering to a partner or investor may not fly.
Engineered Sports has done several things well that aided in their loan payback, in spite of a challenging economy and dramatic changes in health care.
Treating sports injuries of athletes for the Silvertips, Aquasox and several area colleges, including Everett Community College, the business is well connected with the local sports community. Miller noted that there are also a fair number of active baby boomers who require their services. This is a niche market that has grown dramatically in recent years.
The business also offers pro-bono training and injury prevention support to participants with Special Olympics, a charity that helps developmentally challenged youth to participate in competitive sporting activities.
Engineered Sports startup costs included exercise equipment, lease improvements, office equipment to support operations, marketing and medical supplies. Building a solid client base was also high on the list of priorities since cash flow would be the measure by which the business could fly or flop.
The Miller and Hamre duo spent the early years in business wearing many hats, simply to keep the dream alive.
"Those were long and difficult days in the beginning," Miller said. "We were treating patients during the daytime hours and then running the office and cleaning the facility after hours. Now that we've grown to a staff of six, there's opportunity to focus on the work we really enjoy."
It took five years for Engineered Sports to pay off all the debt from the various funding sources. Miller was pleased to report that they are profitable and debt-free. That is quite an accomplishment considering the the economy at the time of their business launch.
Clearly, Engineered Sports is serving a niche that has tremendous growth potential. Expansion is certainly a possibility in the future, knowing that the business is serving a customer need.
When asked if he would consider the same approach of credit card borrowing if Engineered Sports were to expand, Miller shared that while the strategy worked for their business startup, the next time they'll be seeking funding through a traditional SBA loan. As a veteran, Miller may also have access to future business funding through the Veterans Administration.
You can learn more about Engineered Sports at

Juergen Kneifel is a senior associate faculty member in the Everett Community College business program. Please send your comments to



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