Your Credit Card As A Record Label And What You Should Know Before You Go There

ripped credit.jpgLast week, we talked about Brian Message and Terry McBride’s new label Polyphonic. Employing a investor based model of $300,000 investments into bands and then farming out labels duties to freelance private firms – we
are going to see more and more artists taking this hint and going the way of finding
investors instead of a traditional record label model. While discussing this idea I wrote something that I have received some emails and calls about that I feel we should discuss further. Here is what I wrote:

“When I worked at an indie in the 90′s I once heard the saying that we
weren’t much different than “having a credit card with some
distribution and a PR department.” This saying wasn’t entirely true
back then since distribution was hard to come by before the Internet
and we held the key to access many things bands could not get on their

As much as credit card debt is an evil thing to get involved with and it is getting worse everyday, it can be used as a tool. Many bands have used it as just that over the years, in place of investors and using the easy to get capital an an investment in themselves. As the model of using investors instead of a record label becomes more popular we have been seeing the idea of funding a band with credit cards being a light bulb that goes off in more and more artists heads. I can hardly recommend it to anyone seeing as my own credit card debt
has been something that has probably caused a few grey hairs in my life
but I also know it is something our readers are very curious about. After the jump we are going to give you a few things to consider before going down this long and winding road.

The Realities Of Paying Off $X A Month
The first thing to consider when going into credit card debt is whether you will really be able to pay it off. Credit Cards have a monthly minimum payment you are going need to pay from month to month. While many people can get anywhere from $2-30K of credit – depending on their credit score – it isn’t going to be a great idea if you can’t pay it off. As well, when groups get the bright idea that every member of the band should go into debt it becomes a dangerous road. $10K of debt is going to mean you are going to need to pay off around $300 a month. This means for every $10K of debt you have, you are going to need to make $300 that month aside from all the other expenses you have. This may seem very feasible to you or it may not. Those are the obvious considerations but here are some things you may not have considered:

  • What about the months you take off? A month to record your record? What happens in December when there aren’t many good gigs to make money with?
  • Paying $300 on $10K of debt takes a little more than 3 years if you have a reasonable interest rate (good luck finding one in 2009 BTW). Do you really want to be paying off all of that debt 3 years later if things don’t work out?
  • If you get booted from the band, you break up or whatever may happen, you are still responsible for that debt and need to find a way to pay it off.
  • If you usually save up for tour in “off months” you now have the added burden of this debt to pay that month, which can make saving tough.

The Hidden Fees
The credit industry is ruthless these days and a payment that is 3 days late because you were trapped in a snowstorm in Wyoming can lead you to going from a 4% interest rate up to 22% or more which make paying off a debt pretty painful. One slip up these days and the credit card companies have the right to make your life a living hell.

The Reality

You can take a credit card and conceivably use it in place of a label. If everyone in your group were to have amazing credit, you could have $30K each in credit. Meaning a 5 piece band would have $150K to spend. Not a very likely scenario but let’s entertain this for a second: $150K is more than enough to fund a great recording, hire the best in publicity, tour support and hire people to push your videos to major networks. The problem is you now have at least $4,500 to pay in minimum fees every month. That is a hard profit margin to manage for the next 3+ years.

Let’s take this down to something more reasonable like $30K – you are still paying off $900 a month in fees. While you no longer need to give a label their cut and you will keep as much as 97% of your record sales and many other income streams, this still doesn’t add up if you aren’t selling records. Depending on how much you sell you may as well consider your credit card company a label with them taking such a huge cut. If you aren’t gigging you need to sell almost 100 full priced LPs a month to break even with your debt ($9 profit per LP ((being generous here)) x 100 = $900). If you are on tour for the whole month you are going to need to turn a profit of $30 everyday just to pay off this debt. While you still do have many other income streams like merch, licensing, gig money etc. the credit card company still needs their cut every month and on time. Think about all the other things you have to pay for gas, van, eating, etc. and you will see this extra payment can be tough to come by sometimes. In order to gauge if you can pull this off you better have a very thorough and well thought out budget.

The Cushion
What most people find Credit Card debt useful for is an emergency. What if your equipment is robbed or the van dies? These are the things that credit cards come in handy for. If you have spent all of your credit on funding your band you may be really screwed in times of an emergency.

Playing It Safe
I personally have seen the credit card as a record label work well in only one scenario. Keeping a low amount of debt such as $2-3K and let’s say you record some songs with that to get gigs. You take it slow, and use the gig money to pay back the debt. After you have gigged a little and you are profitable locally you go in to another $1K of debt for merch / pressing CDs and another $2K for a van. You tour a little bit and pay that off. This can actually happen and does with many acts all the time if you make the right moves.

While you still are paying a heavy fee to a lender it can also enable you to get you somewhere in life for the price of your interest rate. Often times when weighing credit card debt you have to think if the interest fee and the burden of a monthly payment will get you where you really want in in life. As much as it turns my stomach to say it – credit cards have made my dreams come true. I got ahead by using them and while I am still in debt from some of my purchases nearly a decade later, it was worth all the bills, the pain and the fees since I got where I want to be in life with their help. Despite all of those benefits this takes slick calculation and realistic number crunching. Beware of the pitfalls and be realistic before you use your credit card to finance your career it is a dangerous field that can turn into a bad situation with one misstep. If you do not plan realistically you are headed for a life of pain.

Jesse Cannon is the editor of Musformation. He produces records at his studio Cannon Found Soundation. Follow him on Twitter at @JesseCannonMusF. For more info please visit his website.