Creditnet News Story

Small Businesses Rely Heavily on Credit Cards

Tuesday, May 19, 2009

By Linda McCarthy

Surveys show majority of small businesses rely heavily on credit. How badly are small businesses affected by stricter credit regulations?

According to a survey conducted by the NSBA, the National Small Business Association, most small businesses are relying on their credit cards to survive in this economy. The research revealed that almost 60 percent of those surveyed utilized their credit cards last year to meet their financial needs. This figure is 10% higher than the findings from the previous survey conducted last December.

This increasing dependency of small businesses on credit cards is taking place even as credit card companies tighten their conditions and increase their rates. When cardholders were asked to describe their credit card terms today compared to five years ago, nearly 80% of the survey respondents said that the terms are becoming harsher. Seventy-five percent of small business owners described the terms of their credit cards as being stricter now even when compared to just six months ago.

Bad debts are resulting in credit card companies imposing harsher credit card terms. In fact, Advanta Corp, one of the biggest credit card companies that specifically targets small businesses, announced it is shutting down all its accounts due to mounting delinquencies and bad debts. The company holds around 1 million small business credit card accounts.

The credit card industry has been in the spotlight since Congress started deliberations on the Credit Cardholders' Bill of Rights. This bill aims to protect consumers from confusing card terms stated in hard-to-read fine print. Consumer advocates say these predatory tactics make it difficult for many cardholders to understand the conditions and penalties that credit card companies impose on them.

The Senate also came out with a version of the bill, proposing putting a cap on the maximum interest rate imposed by credit card companies. This provision was overturned, however, as some legislators feared it could make it harder for people in need of credit to qualify for a credit card.

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