The year 2008 was a rotten one for the banking business. What began as a “mortgage crisis” mushroomed into a full-blown, across-the-board “credit crisis.” This has led to banks pulling back on all types of credit, but an even greater pullback on one of the riskiest types — that given to small businesses.
Looking at the 2009 landscape, there is good news and bad news. The good news is that things probably can’t get much worse. The bad news is that most of the news is still bad, and will probably remain so for at least the first half of the year.
That said, here are ten predictions / trends to be aware of in 2009.
1. You Used to be Desirable Now, Not so Much
In 2006, an executive at a major card issuer told me that small business credit cards was a huge growth market. After all, businesses spend a lot of money, and most of that money was not going on credit cards but instead still being circulated via purchase orders and checks. Thus, there was an aggressive push by many credit card issuers to roll out new cards for business.
Well, the tide has turned. When times get rough, it seems you as a small businessperson are a little less attractive. Business credit cards will be harder to get in 2009, and the interest rates offered will be higher than those offered over the past few years.
2. Fewer Business Credit Card Offers in Your Mailbox
This may not upset you, but in keeping with the trend above, credit card companies will be sending out fewer mail solicitations.
3. Fewer Credit Card Offers Online
While online marketing of credit cards has been a huge boon for issuers in many ways (in particular the cost of acquiring a new customer is much cheaper), the disadvantage of opening your offers to all comers online is that everyone comes. This includes the people issuers don’t want, especially at times like this when every business and every person seems just a step away from being knocked out financially. Thus, issuers are being less aggressive online. In perhaps the most extreme example, Chase has (at least temporarily) pulled most of their business credit cards from online channels altogether.
4. Lower Credit Limits
This trend is especially tough for the small business owner, who is more likely to want to finance sizable purchases. New cards being issued will have lower credit limits than in the past, and you could even see your existing card company cut the credit line on which you currently rely.
5. Continued Lower Interest Rates than Consumer Cards
Despite my negativity, business credit cards will continue to offer better rates than consumer cards for those who qualify. If you have a business with a track record and/or you have a strong personal credit history, the market for business credit cards is not entirely closed. It can still make sense to apply for a card or two, especially if the alternative is using your existing, high-rate consumer card.
Also, it can make sense to apply for new cards BEFORE trouble hits, instead of when you are desperate.
6. Fewer Rewards
This is probably the last of your worries, but, in most cases, credit card companies are being stingier with rewards than in years past, whether it’s airlines miles, cash, or merchandise points.
7. More Discounts
While the straight rewards will diminish, expect credit card issuers to continue designing partnerships with relevant business vendors to give you discounts on products and services such as office supplies, overnight services, etc. They’re not freebies, but these discounts can cut your costs.
8. More Relevance
Many credit card issuers initially treated small business customers the same as consumers. The only real benefit to a business credit card seemed to be that it allowed you to separate your business and personal expenses (and you’d have a credit card embossed with your business name).
Each year, though, the industry innovates, creating offers more relevant to how business actually works. Examples abound:
- Discover offers PurchaseChecks that can be used to make purchases at vendors that wouldn’t normally accept credit cards.
- The Plum Card from American Express gives you a 2% discount for paying early or conversely allows you to pay just 10% of the outstanding debt in order to extend the payback period for two more months interest free.
- Advanta has introduced a card offering 90-days interest free on every business purchase, a significant advantage over the traditional 20-30 day “float” we’ve come to expect from credit cards.
9. More Customization
Advanta offers business credit cards targeted to specific industries or occupations, offering discounts or rewards directly related to the type of business being targeted. Other issuers have offered similarly targeted cards, such as those especially for construction contractors. Expect this trend to continue.
10. Companies Again “Playing to Win”
No business article would be complete without a sports analogy. Here’s one. Right now credit card issuers are like a football team that plays “not to lose” when up against a stronger opponent. (In this scenario, the opponent is the scary economy.)
However, issuers are not used to being in this position — they prefer playing to win (as many of us are all too well aware). They’ve called time out and are staying on the sidelines, but as soon as they see a vulnerability in their opponent (the economy starts to revive), there is absolutely no reason to believe they won’t be back in the game nearly as aggressively as before. I believe this will happen in the second half of 2009.
For now, we tighten our belts, perhaps downsize our dreams for a while. At this time last year, few of us could have imagined that things could go so bad so fast. While the recovery won’t be nearly as quick as the pain inflicted, I believe by next December we will all be feeling a whole lot better.
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About the Author: Justin McHenry is president of credit card comparison site Index Credit Cards, and has been widely quoted on the subject of credit card issues by publications including the Wall Street Journal, USA Today, BusinessWeek, Money Magazine, Newsweek, U.S. News & World Report, the Chicago Tribune, and more. Of particular interest to Small Business Trends readers would be the section on Index Credit Cards devoted to Business Credit Cards.