According to a study by the Kauffman Foundation, called The Use of Credit Card Debt by New Firms, about 58% of the firms studied relied on credit cards to finance operations in their first year of business. The study results found that every $1,000 increase in credit card debt increases the probability a firm will close by 2.2 percent.

In 2004, those businesses that closed had less credit card debt ($2,365) than businesses that survived ($3,638). This average increases 40 percent by 2005 for surviving firms and increases 190 percent for businesses that closed. However, by 2006, the one-year change in credit card debt balances for surviving firms was a marginal 1.8 percent gain; but the average balance actually decreased by 18.5 percent for firms that closed.

The Kauffman Foundation claims credit card debt is a “significant influencer in the company’s probability of survival.”

This is an astounding conclusion, especially given the amounts are so stunningly small. Maybe the survival rates are so low because the firms relying on less than $4,000 are not serious to begin with…

I would love to hear other thoughts on this topic.