Getting Business Credit in Today’s Economy

Posted on May 13, 2009 by David Gass 6 Comments

There are so many changes with the credit markets these days it’s tough to keep up. As a small business owner, it’s important to keep updated on the highlights so you know where you can turn to when you need capital.

In our latest blog post we have a few updates about some credit issuers and the latest credit bill being passed this week in congress, all information that a small business owner should be aware of.

Advanta Corp said late Monday that it is no longer going to issue small business credit cards. Advanata (NASDAQ: ADVNB; ADVNA) of Spring House, PA funds its credit-card receivables by placing them into a trust and selling shares in it to investors who are paid interest on their investment. The rising delinquencies is causing less money to come in from investors and putting a strain on the business. Analysts are not seeing a good outcome for Advanta.

If you have an Advanta small business credit card you may want to call the bank and find out if they will be calling your account payable any time soon. This could be a way for the bank to bring in much needed capital, but cause an even bigger strain on small businesses with balances of their cards.

The NSBA recently completed their 2009 Small Business Credit Card Survey just recently. Some of their findings included:

In December 2008 – 49% of small businesses used credit cards to finance their firms in the last 12 months

In April 2009 – 59% have used credit cards to finance their firms in the last 12 months.

In December 2008 – 69% said they experienced worsening credit card terms in last five years

In April 2009 – the number was 79%, and when asked if their credit card terms had worsened in the last six months 75% reported they had

In April 2009 – 33% of small business had their credit lines reduced, up from 28% in December 2008

In April 2009 – 40% report paying off credit cards at the end of the month down from 50% in Dec. 2008

What does all of this mean?

We know small businesses are having more difficulty getting traditional bank financing. Many of them are turning to credit cards not thinking there are any other choices. The banks are taking advantage of this and raising interest rates and making terms much worse for the business.

Credit Card reform Legislation is going through the House and Senate this week and is expected to be signed by the President by the end of the week.

There are a lot of proposed changes to keep the credit card companies from making dramatic changes to terms, however once again small business credit cards are NOT included in the legislation.

If we are to see a recovery in the economy we need small business to create the jobs. Job creation of small business got us out of the last recession; it could get us out of this recession too, HOWEVER, the lack of financing options will slow this down.

Small businesses need access to capital, financing options and the knowledge of when terms will change in order to manage their finances. We can do everything in our power to change the mindset of politicians, however I choose to take actions that I can control the outcome. Politicians have their own agendas and seem to rarely look at the small business owner’s needs when making decisions. That being said, we (the small business owners) need to keep our options open for alternative financing sources and capital access.

The alternative financing industry is growing rapidly and vendor/trade credit is being used more and more as business owners find decline letters from banks in their mail box each day. The key is to be prepared and in compliance with what these institutions / lenders need so you can get access to the capital.