In recent years, credit card companies have seen the small business sector as one of the fastest growing credit users and the most profitable as well.
It was American Express who first released a credit card specifically made for small businesses, about twenty years ago. In the past decade, other credit card companies began to move in on the small business sector as a fast growing source of new credit accounts, moving away from the already saturated consumers sector.
Because of the profitability of small businesses, credit card companies had solicited their services aggressively to small businesses. Quite a few credit companies started issuing credit cards instead of loans to small businesses. As a result, credit card payments became the preferred, if not required, payment method among vendors. The growth of the market was strong enough that a few companies began to focus exclusively on credit cards for small businesses. One such company was Advanta. Founded in 2001, the company saw its profits surge. In 2006, it posted 54% more profits compared to profits from the previous year. Advanta eventually saw more than a million small businesses subscribed to their credit cards.
As a result of the rapid growth of small business credit cards, small businesses saw a change in how they ran their operations. Whereas, traditionally they would rely on personal savings, bank loans or even family members and relatives to finance their businesses, credit cards soon became their preference, mostly due to its convenience and more flexible nature. The rewards programs and low introductory offers were also very attractive as well.
Now, small businesses are finding out that their credit cards have become more burden than help. Credit card companies, in a bid to reduce their exposure to risk, are cutting down available credit and increasing interest rates. Some have seen their interest rates increase to as high as 30%. Others have had their credit limits cut from $30,000 to $5,000. These are putting an enormous strain in small business and many have had to cut down on their operations, further slowing down the national economy which is now just about stagnant.
Another blow to small business is that they are not included in the protections to be provided by the credit card bill when it becomes active. Without the protection of the credit card bill, small business owners are concerned that their particular credit crisis will continue unabated. Fortunately, a coalition of senators are currently seeking to extend the credit card bill to small businesses.
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