As small business lending is drying up, a lot of banks are offering more credit cards for businesses.
CNN reports that banks are offering more credit cards for businesses in lieu of traditional small business loans. In fact, JPMorgan and Chase has introduced four new credit cards for businesses. All of them have interest rate that are up to 30%.
More credit cards are being offered because they are more profitable for banks -- allowing them to charge (and hike) variable interest rates and charge penalties such as late fees.
The plastic financing mentality is catching on. CNN reports that 60% of small business owners have used a credit card in order to finance their small businesses. On the opposite end of the spectrum, only 45% of the same small business owners had a small business bank loan.
As we wrote about in a previous Free Enterprise post, small business lending has been tough. The Small Business Administration has just announced that two of its most popular lending programs (7(a) and 504) have run out of stimulus money. This has meant that small businesses have had to turn to financing options such as high interest credit cards.
Small business owners know that funding a business through a credit card is risky. It can ruin your credit rating and score as well as being a very costly to your small business.
For more information on credit cards and small business lending, please visit our Related Resources section.
- Sources of Small Business Financing (Findlaw)
- Small Business Credit Card Rates Hiked and Limits Slashed; Prospects for Reform? (Findlaw's Free Enterprise)
- Small Biz: Yes, You Can Negotiate With Credit Card Companies (Findlaw's Free Enterprise)
- Card Reform May Come Too Late This Holiday Season (Findlaw's Common Law)