Credit card issuers targeting small businesses

Westchester County Business Journal, May 23, 2005 by Archer, Rick

There was a time when credit card companies considered small business owners a bad risk, Gene Fairbroughter said.

"Years ago, you didn't want to put 'self-employed' on a credit card application," said the lead small-business consultant for the National Association for the Self-Employed.

Now, credit card issuers are targeting small businesses and an increasing number are using credit cards as a financing tool, according to small-business experts and bankers.

While they agreed it is a useful tool, there were also warnings that business owners should avoid the traps that often ensnare individual credit card users.

While credit cards aimed at smallbusiness owners are a heavily marketed item, hard figures on how much the business credit card market has grown were hard to come by.

A report by the federal Small Business Administration (SBA) found that the number of loans to small businesses of $10,000 and under was up 45 percent between 2001 and 2002, a change they partially attributed to increased use of credit cards by businesses.

However that number was likely exaggerated by the inclusion of inactive cards and multiple cards issued to the same business, said Charles Ou, senior economist for the SBA.

The reporting has tightened in recent years, but the numbers may be suffering from the opposite problem now, as figures from banks like the American Express Business Bank and Capital One are not included in SBA reports. "Capital One is really selling their business card. They must have issued millions," he said.

Nevertheless, he is getting the general impression that the field is still growing.

Fairbroughter agreed, saying the most common questions he receives from the owners of businesses with 15 or fewer employees are about credit card financing "Almost all of them have used credit cards at some point," he said, explaining they are often used when starting out or to get a business through a downturn.

Credit card financing is particularly popular with home-based startup businesses, said Mario Rugguero, small-business consumer supervisor for Bank of America.

But while having a separate business and personal card is a very good idea for bookkeeping purposes, there is no real difference between a personal and a business card. "A credit card is a credit card is a credit card," he said.

In particular, the business owner is still personally responsible for the charges on the card, whether it is in his or his company's name.

However, Geraldine Devits, vice-president of cash management for M&T Bank, said there is a distinction between the business and personal cards for some companies. Visa, for example, gives business card holders less time to dispute charges than personal card holders.

As with a consumer credit card, it is important to read the agreement carefully before signing up for a business card, Fairbroughter said. Like with consumer cards, a late payment is often grounds for revoking the lower introductory interest rate and instituting a much higher one, he explained.

It's also just as easy for businesses to fall into the same bad habits as individual cardholders, losing track of their purchases and getting in over their heads.

Credit cards are best used if they offer a lower interest rate or some other advantage over a conventional loan. Faorbroughter said, "If you can't get a loan, you probably shouldn't put it on your credit card."