Editorial Policy

Study: Business Credit Cards Boost Job Creation

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By Eva Norlyk Smith, Ph.D.
July 30, 2010

A recent study commissioned by the American Bankers Association suggests that small business credit cards act as important sources of credit for small businesses and help boost new job creation.

The study, which was carried out by the economics and public policy consulting firm Keybridge Research, was based on a nationally representative sample of 4,240 small businesses. Findings suggest that for every 1 percent increase in available business credit card credit, there was a corresponding .051 percent boost in firm employment. The study also found that for every 1 percent increase in business credit card credit, companies saw a .14 percent jump in revenues.

As a result in the increase in revenues and firm employment, the researchers estimate that the business credit card expansion between 2003 and 2008 contributed to the creation of over half a million new jobs in the U.S.

Small businesses play a vital role in the U.S. economy: in addition to representing 50 percent of the country’s total employment and 44 percent of all annual pay, small businesses are one of the fastest growing sources of new jobs. In the past 15 years, 65 percent of new jobs were created through small businesses.

One reason that business credit cards increasingly play a role in small business funding is that, in contrast to other types of business loans, business credit cards afford an easily available source of credit. According to a recent survey by the National Federation of Independent Businesses, only 39 percent of small businesses applying for bank loans get approved for a loan, and only one in three applying for a credit line get offered one with satisfactory terms. In contrast, three out of four applications for small business credit cards get approved.

Despite the benefits, the study notes that the evidence on the net impact of credit cards on business success in the past has been contradictory. While small business credit cards boost revenues and job creation by affording easy access to credit, the sometimes high carrying cost of credit card debt as well as uncertainty of terms may increase the risk of business credit card use.

In the wake of the 2008 credit crisis, more and more businesses have had to turn to business credit cards to fund their business operations: A 2009 survey by the National Small Business Association showed that 59 percent of small businesses use credit cards to meet their capital needs, and more than one-third of small businesses obtain 25 percent or more of their overall debt financing from credit cards.

The main benefits of business credit cards may derive from the fact that they provide businesses with access to credit where no other types of credit are available. The study did not address whether gaining greater access to more traditional form of business financing might ultimately prove equally or more beneficial for small businesses.

Overall, the study concludes, small business credit cards provide important economic benefits by allowing firms not only to borrow funds long term, but also to stretch out their funds, manage monthly expenses, and more efficiently allocate funds. In the continuing tight credit climate, business credit cards can mean the difference between making it or breaking for small business owners with no other recourse to credit for financing business operations.