Small-business credit card rates increase

Almost two-thirds of business owners say their credit card interest rate has gone up in the past year and 41% say their credit limit has been reduced, according to a new study from the National Small Business Association. (Click on image for a larger view.)

The change in terms for using credit cards comes at a time when small businesses are becoming more reliant on their credit cards to stay afloat, the NSBA 2009 Small Business Credit Card Survey found.

Separately, Advanta, which has focused exclusively on credit card lending to small businesses, has announced that it is cutting off all customer accounts on June 10 because of mounting losses. It has 1 million customers who charged $13 billion in 2008. CLICK HERE to read more.

One in five survey respondents is now paying 20% or higher interest on credit cards and another 28% is paying 15% to 19%

With the credit meltdown last fall cutting off virtually all conventional loans to small businesses, many owners turned to their credit cards, the survey found. In fact, credit cards were the most common source of business financing in the past year:

Types of financing used for business capital needs April 2008 through April 2009:

* Credit cards, 59%
* Earnings of the business, 51%
* Bank loan, 45%
* Vendor credit, 30%
* Private loan (friends or family), 19%
* Used no financing, 19%
* Leasing, 7%
* U.S. Small Business Administration-guaranteed loan, 5%
* Factoring (pledging accounts receivable, 1%
* Private placement of debt, 1%
* Private placement of stock, 1%
* Public issuance of stock, 0.5%

“Unfortunately, today’s entrepreneurs - unlike those of past recessions - are severely limited in their ability to finance a new business by leveraging the value of their home, borrowing from friends and family, or securing a traditional loan. This leaves one clear, often unattractive, option: credit cards,” said NSBA Chairman Keith Ashmus of Frantz Ward LLP in Cleveland, Ohio.

This fact is a problem for the United States, he added. “In previous recessions, economic recovery has been led by the creation of millions of new small businesses.”

The survey was conducted April 27 to May 5, just as the U.S. House of Representatives passed credit card reform legislation but excluded business credit cards. Senators Mary Landrieu, D-Louisiana, and Olympia Snowe, R-Maine, have introduced an amendment to the bill that would provide protection for small-business credit card holders.

Other survey finding:

* 33% of respondents said they had received their credit card statement after the due date
* 40% pay their credit card balance off monthly
* 16% carry a credit card balance of more than $25,000
* 23% have just one business credit card and another 23% have more than 4 cards