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Posts Tagged ‘small business credit’


Small Businesses’ Credit Profiles Are Improving. Is Yours?

November 20th, 2012 ::

By Karen Axelton

Ask any small business owner who’s been trying to borrow expansion capital, obtain working capital or simply get a line of credit from a lender, and they’ll tell you it’s become far more difficult since the recession hit. However, a new study by Direct Capital Corporation suggests that the tough times may have actually had a beneficial effect on small business owners in one way: Since the recession hit in 2008 and during the past few years of recovery, small business owners’ average credit profile actually improved in 45 out of 50 U.S. states.

Direct Capital Corporation, a nationwide lender to small businesses, reviewed credit data for over 23,000 small businesses nationwide during the past 12 years. Where do small business owners have the strongest average credit profile? Nebraska topped the list, followed by Alaska, South Dakota, Indiana and Oklahoma.

The states where small businesses’ average credit profiles have declined in the past four years are Washington, DC (which had the lowest average credit profile), followed by Rhode Island, New Mexico, Montana and Texas.

Direct Capital Vice President of Marketing Stephen Lankler says one reason for the surprising change is that business owners have a heightened awareness of how important it is to keep their credit score high. “Business owners today are much more aware of how important it is to maintain a strong credit profile,” he said. “That was not the case five to seven years ago when it was much easier for a business to access credit.”

Lankler says growth in the number of products that give businesses on-demand access to their credit profiles has also contributed to the higher credit scores. “As a result of the financial crisis, major lenders – including banks – have become much more restrictive in extending credit to business owners,” Lankler said. “In response, business owners have become more vigilant in maintaining strong credit profiles and a flood of products have been introduced to help them do so.”

What are some ways you can keep your business’s credit score high?

  • Pay your bills on time and if you cannot, talk to the vendor to work out a payment plan.
  • Monitor your business’s credit report to note any errors and take steps to correct them.
  • Don’t mix personal and business funds. Use business, not personal, accounts for business purchases.
  • Use business credit cards carefully, being sure not to overutilize credit. Ideally, pay off your balance in full each month, but if you can’t, keep your balance under 30 percent of your available credit.
  • Even if you never plan to use it, make sure you keep enough available credit (through business credit cards and other options) to get you through an emergency if need be.

Image by Flickr user ThirdLegReviews (Creative Commons)

 

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Posted in Capital Access, Raising Capital, Small Business, small business | 3 Comments »

Will Small Business Credit Card Users Get Protection?

August 11th, 2011 ::

By Karen Axelton

The Credit Card Accountability Responsibility and Disclosure (CARD) Act extended lots of protections to consumer credit cardholders. Thanks to the CARD act, credit card issuers can’t raise rates without notice, add penalty rates to existing balances or charge fees higher than the amounts that are owed. But the CARD act didn’t apply to business credit card holders. Now, The Wall Street Journal reports, legislators are seeking to extend some of those protections to business credit card users.

There’s good reason to seek added protections. The Journal reports that in a still-tough economy, more and more small business owners are using credit cards just to get by. The Journal cites the following sobering statistics:

  • In 2010 more than 80% of small businesses used credit cards for working capital; about 64% used business credit cards, according to the Federal Reserve.
  • About 60% of small-business bank-loan applications were rejected this year, according to Pepperdine University.
  • In contrast, only one-fourth of small companies that applied for business credit cards were rejected.
  • Credit-card use by small businesses has risen in the past six months, and more business owners are carrying larger balances ($10,000 to $25,000), according to National Small Business Association data.

In May, Rep. Nita Lowey (D., N.Y.) introduced a bill to extend the CARD Act’s protections to companies with under 50 employees. And in June, Democrats including Sens. Jack Reed (D., R.I.) and Charles Schumer (D., N.Y.)  called on the central bank to require card issuers to clearly disclose that business credit cards are not covered by the CARD Act.

But banks contend that business credit cards pose higher risks for them, and that they need to be repaid for taking those risks. For instance, one source the Journal cites notes that most small businesses use credit cards for working capital when they can’t get a traditional bank loan. In addition, the limits on business credit cards are far higher than consumer cards, and small business credit-card loss rates are 20% to 30% higher than consumer losses, Federal Reserve data shows.

Banks are making business credit cards increasingly tempting, the Journal notes. In 2010, Federal Reserve data showed that half of small businesses receive business-card offers in the mail every month, up from 35% in June 2009.

There’s some good news for small business credit card holders: More card issuers are adding some CARD Act protections to their business credit cards voluntarily. This group includes Bank of America, Capital One and American Express.

What can you do to protect your business from onerous credit card practices? First, find out specifically what your credit card protections are. Read the fine print. Next, keep your balances reasonable. And third, make your payments on time. Just like any lender, credit card issuers will take swift action if you don’t keep up your end of the bargain—and that means you could be in for a world of hurt.

Image by Flickr user Shawn Rossi (Creative Commons)

 

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Posted in Accounting and Taxes, Business Law, Capital Access, Compliance, Raising Capital, Small Business, small business, Uncategorized | No Comments »

Getting Business Credit Still Difficult for Small Businesses

July 14th, 2011 ::

 By Maria Valdez Haubrich

Small business owners’ access to capital is still being squeezed, it seems. Entrepreneurs’ ability to get credit when they need it is easing somewhat, but is still in decline compared to pre-recession levels of access to credit, according to the most recent Wells Fargo/Gallup Small Business Index survey.

In the survey, conducted in April, slightly fewer small business owners say credit is difficult to get now than in recent years. However, nearly three times as many say credit is difficult to get compared with the number who said this in 2007.

Business owners were asked, “Over the past 12 months, how easy or difficult has it been for your small business to get credit when you needed it?” In 2007, 54 percent said it was somewhat or very easy to get credit; in 2011, just 21 percent said the same. In 2007, just 11 percent said it was somewhat or very difficult to get credit; in 2011, that figure had risen to 30 percent.

On the positive side, the percentage of small businesses describing access to credit as somewhat or very difficult declined from 35 percent in the prior survey. On the down side, the percentage saying credit is somewhat or very easy to get has remained largely unchanged since mid-2009.

Gallup notes that the collapse of the U.S. housing market continues to be a major factor in small businesses’ problems accessing the credit they need. Before the recession, many small business owners used their homes and real estate to secure business loans and lines of credit. The collapse of home values, which still haven’t rebounded in most parts of the country, combined with tighter lending practices on the part of banks, has virtually wiped out many small business owners’ only source of collateral. In many cases, this is making it nearly impossible to get a business loan or line of credit. “Returning housing to price stability or better is a key to returning easier credit to the nation’s small businesses,” Gallup concludes.

How has the housing collapse affected your business’s credit-worthiness? Are you having trouble getting what you need?

Image by Flickr User Let Ideas Compete (Creative Commons)

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Posted in Capital Access, Raising Capital, Small Business, small business | 1 Comment »

Which Business Credit Cards Rank Best for Small Business?

May 17th, 2011 ::

By Karen Axelton

The CARD Act added lots of protections to consumer credit cards—but it didn’t extend to business credit cards. Have any business credit card issuers taken steps to extend some of the same protections to their business customers? That’s one of the things CardHub sought to find out in the latest CardHub Small Business Credit Card Study.

CardHub looked at the business credit card practices of the nation’s 10 largest credit card companies to “determine which of these issuers, if any, have proactively extended CARD Act protections to their business credit cards, and to evaluate their level of transparency regarding business credit card practices,” the company says in its report.

CardHub focused on the protections most likely to be the most useful to small business owners, and gave a percentage weight to each protection as follows:

  • An increased interest rate/penalty APR cannot be applied to an existing balance unless the cardholder is at least 60 days delinquent: 40 percent
  • No double cycle billing: 15 percent
  • No universal default: 15 percent
  • Issuer must provide 45 days notice before changing terms of card agreement: 15 percent
  • The amount of a payment that is above the minimum must be applied to the balance with the highest interest rate: 15 percent

Issuers’ highest possible score was 100. Each issuer was also rated based on the “transparency” of its business credit card policy. Issuers that were completely forthright about their practices were rated “Good;” those that provided some, but vague, information were rated “Mediocre;” and those that declined to respond to questions about their policies were rated “Bad.”

The winner by far? Bank of America, which offers its business credit card holders CARD Act protections including no double-cycle billing, universal default, favorable payment allocation and 45 days notice before making account changes. Bank of America also waits until accounts are at least 60 days overdue before raising interest rates.

While several other companies besides Bank of America rated “Good” in terms of transparency, many of those ranked poorly in terms of their actual policies.

“The longer industry leaders wait [to extend CARD Act protections to business credit card users],” say the authors of the study, “the more likely it is that their customers will rely on personal credit cards for business spending. Not only will this cost their business credit card divisions money, but the banks themselves will also be privy to less useful underwriting information as a result.”

You can see the top 10 ranking and read detailed breakdowns of the areas where each credit card issuer did well and poorly at the CardHub site.

Image by Flickr user demosphere (Creative Commons)

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Posted in Accounting and Taxes, Capital Access, Small Business | 2 Comments »