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The Rise of the Small Business Credit Card
By Bizbox
Alan L. Carsrud, who runs Florida International University's Global Entrepreneurship Center, says it all to the New York Times: “Small-business cards have fundamentally replaced lines of credit."
The big story of the U.S. economy for the past several months has been the "credit crunch". Credit has become as valuable as gold, and as scarce. One of the main consequences of the crunch as far as small businesses are concerned, reports the Times, is the decline of lines of credit and the rise of small business credit cards. (Time to note that BizBox's sponsor is American Express OPEN.)
Lines of credit tend to be much easier on the borrower: their interest rates are either fixed or slow-moving, and tend to be altogether lower than those of small business cards, which like normal credit cards can contain wildly altered and high rates depending on the borrower's credit score, or even simply on the lender's whim. Small business credit cards' advantages, according to the Times, generally have less to do with the credit facility itself and more with extra, ancillary benefits such as other discounts and more generous payment terms.
The change has already happened. A National Small Business Association found a record low of small business owners--only 28%--had used business credit cards for the year before. And that was in February: as the crunch has persisted, that figure has almost certainly worsened.
Credit cards are a tricky, fickle beast. The rates are variable, and high. Generally, they are less conducive for raising capital. No wonder that, as we discussed yesterday, many small business owners say that their single greatest political concern is the lack of available credit.
It's worth noting that, in theory, this overall situation hurts banks too: the move towards credit cards is sure to restrict (further) how much overall they lend to entrepreneurs, whereas ideally they would be lending as much as possible (to successful endeavors). Instead, to protect their investments and their ever-scarcer credit, they must resort to credit cards, cutting back on how much they lend, decreasing profit growth...and all over again. That vicious cycle thing.
Comments (0)September 12, 2008 10:53 AM
