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.
Brian
Spot on with number 4. I have a credit card with Citi, and just got a letter 2 weeks ago lowering my credit limit. Never having been a day late on a payment, I was surprised. I have an excellent credit rating and use the card very little, however, if you watch the news and see how Citi is on the ropes right now, for sure I’m not the only one. When they cut my limit I knew things were bad with Citi… I am not a big credit user and only had a $5000 limit to begin with (they limited it to $1500).
Martin Lindeskog
Justin McHenry: Do you have some examples of customization of business credit cards?
PizzaForADream.com
In the long run all of this is good for the individual and good for our country. We’ve all bought into the “debt is good” lie that we’ve been deal and it’s time for us all to face reality and learn sound financial practices. Just wish the government would catch a clue before they spend us into oblivion!
Richard Lockyer
Excellent article and its not until you pointed these things out that i realised how things had changed in the CC world.
Read a very interesting article the other day that in Germany a very high percentage of the nation do not use credit but save until they can offered to pay out right.
It would be good if that caught on!
Justin — Nice article. It seems that credit card issuers have always had a love / hate relationship with small business. Right now is a really tough time for a lot of business owners who have been in the habit of using credit cards to manage cash flow. Hopefully lenders will loosen the purse strings soon to help these owners get back on track before it’s too late.
Anita Campbell
Justin, I like the trend about “more relevance.” Let’s face it: a larger percentage of small businesses use credit cards as their major source of funding. It’s about time we have more credit card products that meet our business needs, rather than treating those needs the same as a consumer’s. The 3 examples you give are good ones.
A credit card that operates closer in type to a revolving credit line — just accessible with plastic — is something I would like to see.
— Anita
Bianca Aquino
Justin I love the sports analogy. Though these trends sounded not so good to me especially the thought of acquiring business credit is no longer that easy.
Brian, I’m with you. I had the same thing happen to my Citi account. I can see where these CC companies are coming from and I don’t blame them for watching their backs. I think this can serve as a wake up call for some to reign in their spending whether personal or business. However, I doubt this will last. Once things turn around, people will be back spending as usual. And CC companies will be back to fighting for your business.
TJ McCue
Justin, I’ve had a similar experience that others mentioned, but when my partner called the company and reminded them that we had been a biz customer of theirs for years, never had been late, had not had a change in revenue/income, and they reversed the decision.
I read a report that talked about Peer-to-Peer or Person-to-Person lending and how that trend may help bridge the financing gap for small businesses. I’m not sure if it could meet the revolving need that Anita wisely points out is needed. But on a small loan basis, it could provide relief. I can email the report to anyone who is interested as the publisher is a client of mine and i have his permission to share it. It is a bit dated, but it has some meaningful data points in it. It is aimed at the banking industry as an audience, but others may find it helpful.
TJ McCue
Sorry, i mis-typed — the report itself does not talk about bridging the gap for this current crisis, but i have read articles that talk about this. The report highlights the players in the space.
Read a very interesting article the other day that in Germany a very high percentage of the nation do not use credit but save until they can offered to pay out right. –> I believe this is the ideal way in spending but I have other question about credit cards.
I haven’t tried using or availing a credit card for myself yet because I am the ideal spender — saves money first before spending — but is it possible to just have a credit card for ’emergency’ purposes. Are there charges if I may not be able to use the credit card let’s say for a year?
TJ,
As you mention, I would always suggest that if your card company changes your terms, call them. There is no downside to trying to negotiate away a fee, an interest hike, a credit line decrease. The better your other options are, the better your leverage is — i.e., if you have other cards or your credit is such that you could easily get a new card, you have the ability to threaten to walk away if the card company won’t grant your wishes. In today’s environment, though, don’t be surprised if they let you walk. Many banks would rather sit on their money than lend it out right now — making no money is better than losing it in their minds.