Despite the economic stimulus package, credit markets continue to be tight, particularly for small businesses. According to a survey by the National Small Business Association, 42 percent of small business owners polled reported being unable to get the financing needed for their business operations. That’s an increase from 33 percent in December of 2008.
Traditionally, start-up businesses are known to turn to business credit cards to fund new ventures. However, even established small businesses increasingly rely on credit cards. According to the 2009 Small Business Credit Card Survey, credit card usage of small businesses jumped from 49% in December of 2008 to 59% in April of 2009. Less than half of the businesses involved in the survey were start-ups; 56% of the businesses included in the survey had been in operation for 16 years or more.
The rise in credit card use is happening despite continuously worsening terms. Almost eight out of ten business owners (79%) said that their credit card terms had worsened within the past five years. Within just the past year, 41% of respondents had seen their credit limit reduced, 63% had seen their interest rate increase, and 23% had had their interest rate changed from fixed to variable.
One third of business owners used credit cards to fund up to 25% of their business; the remaining used credit cards for a smaller percentage of funding. Credit limits were high, ranging from 20K to over 100K for 84% of respondents, with more than half (53%) having a total credit limit of more than 50K.
Only 40% of small business owners reported paying off their credit cards each month, down from 50% in December of 2008. 37% of respondents carried a balance of more than 10K on their cards. Almost half of respondents paid more than 15% interest rate on their cards with one out of five paying 20% or higher.
The growing credit card usage among small businesses is not just a reflection of the economy, but also increased marketing efforts to attract small business customers. According to industry researcher Mercator Advisory Group, credit card companies send out about 720 million offers for small business credit cards each year, or about 12% of the 6 billion credit card offers sent by mail annually.
The business credit card market continues to be viewed as a major growth area for banks, who desire a bigger share not just of the small business lending market, but also a larger share of the close to five trillion dollars small businesses spend each year on supply purchases and other operation-related expenses.