Many small businesses are using credit card debt as a significant source of financing, and as a result, average card balances are growing.
Credit Cards Offer a Lifeline and Potential Problems
Credit cards can be a ready source of emergency cash, in addition to offering a convenient payment method to small-business owners. These benefits are well known to consumers, and the potential problems that credit cards pose to consumers are also well known.
Excessive use of the cards can lead to bankruptcy in extreme cases. In less severe cases, a reliance on cards can lead to large required payments that are difficult for consumers to make, and late payments result in damage to credit scores. Small businesses can suffer from these same problems.
Convenience offered by the cards could be indispensable to the operations of some small businesses. The ability to delegate purchasing decisions to employees allows the owner to focus on more strategic roles, and could help the business grow. Credit lines available with cards could also serve as a source of emergency funds to meet other bills.
Small Businesses Are Appealing to Banks
Recent regulations, most notably regulations found in the Credit Card Accountability, Responsibility and Disclosure Act, have changed the way banks market cards, and provide services to consumers. These rules do not apply to small businesses, making businesses more appealing to banks in some ways.
Some proof of the changing attitudes of banks towards small-business credit cards can be found in the fact that card issuers increased mailings of corporate card offers by more than 200 percent in the year after the rules were enacted, according to a market research firm.
Another study found that the average credit card debt of a small business is $12,100, compared to about $7,000 for consumers. Interestingly, the study noted that 60 percent of companies that regularly carry a balance on their cards reported annual revenue below $149,000. Cards can make a small business easier to manage, but can cause problems if overused.