The year 2009 was not kind to those seeking business credit cards (or any other business loan). Interest rates were raised. Credit limits were slashed. In the most extreme example, millions of small business owners lost their credit lines completely when Advanta, which focused exclusively on small business credit cards, abruptly closed up shop. Business owners who counted on these ongoing credit lines were left with tough decisions about how to finance their businesses.
Thankfully, there is a dim light at the end of the long tunnel, as the following trends and predictions about the 2010 business credit card market will illustrate:
1. Lending Via Small Business Credit Cards Will Increase
Mercator Advisory Group recently reported that 2009 would be a rare down year for purchase volumes on business credit cards. That trend should reverse in 2010. We’ve already seen at least one important step in this direction — Chase unexpectedly launched not one, but 4 different business credit cards under the “Ink” brand in 2009. With Chase performing relatively well in comparison to its troubled peers, the company saw an opportunity in a segment being underserved due to general financial industry fear. While I don’t expect to see many more launches like “Ink”, I do believe the vaults will open a bit more in 2010, especially as other big banks find their footing again.
2. Business Owners Seeking New Credit Will Need Better Personal Credit Histories
The most common question I get asked about business credit cards is “How do I get a card for my business that doesn’t impact my personal credit?” The answer in 99% of the cases is “You can’t.” Unless you have a strong business history and a substantial revenue base, your business will not qualify for a corporate card program. Instead, in seeking a small business credit card, you are asking a bank to approve you based on your personal credit history. And, in today’s market, the bar has been raised. Your personal credit history needs to look better than ever to qualify for a small business credit card.
(A side note: Because your personal credit history is the basis for approval of your business credit card, there is little difference between most small business credit cards and the personal credit cards you already have. It is convenient to have a business card to separate business purchases from personal purchases, and it is nice to get credit card rewards relevant to common business needs. But if getting a business credit card proves difficult, you always have the option to simply designate one of your personal cards as your “business credit card” and use it accordingly. The card companies will frown on this advice, but it is true.)
3. Higher Interest Rates
While interest rates on small business credit cards are lower than consumer cards on average, they are following the same rate trend — up.
4. More Cards Issued Via “Bank-Based Relationships”
While it’s still possible to go to a big bank’s Web site and be approved for a new business credit card, there is a definite trend toward banks giving more love to those who already have a banking relationship with them. So, if you are looking for a business credit card, start with the bank where you do your checking. If that bank doesn’t offer credit cards, consider switching to a bank that does. By giving a card-issuing bank some of your money to hold, you increase the chances that they’ll (temporarily) give you some of theirs.
5. Don’t Hold Your Breath for Help from the Government
There’s been recent chatter about leftover TARP funds being used to encourage small business lending. What is rarely mentioned is the fact that the original TARP funds were not just bailout money but also cash infusions meant to encourage more lending. Instead, many banks used the money to shore up their finances, or even to buy other struggling banks. It’s hard to understand why the government believes new funds would be used differently.
6. More Business Charge Cards with Innovative Financing Models
For card companies leery of small business owners who revolve balances indefinitely and then suddenly default, the obvious product to push is the charge card, which must be paid off completely at the end of each billing cycle. But how can issuers make charge cards more attractive to business owners who want credit specifically for the ability to carry balances over longer timeframes? By offering charge cards that extend the billing cycle from a miniscule 20 to 25 days out to 60 days, or even 90 days for good credit customers with high charge volumes. The closest example currently on the market is the American Express Plum Card, which allows cardholders to carry new balances for two months interest-free if they make an initial payment of 10% of the balance.
7. A Rising Tide Lifts All Ships
Despite much hand-wringing over the sorry state of business lending by the major banks, remember that the rotten economy has also made many business owners leery of taking on more debt. With signs of at least a tentative recovery, both business owners and card issuers are putting their toes back in the water. Barring a major catastrophe, we seem to be in the beginning stages of a new virtuous cycle, in which better business conditions lead to looser credit, which leads to better business conditions, which leads to… (The cynic with an eye on history will say this eventually leads to greed, wild risk taking, and economic collapse, but let’s try to look on the bright side for now, yes?)
While I don’t expect the economy to return to full health in 2010, I believe the signs of a recovery will grease the wheels in the credit market, good news for bootstrappers and experienced business owners alike.
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About the Author: Adam Jusko is founder of credit card comparison site Index Credit Cards, which is regularly referenced in 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 is the section of Index Credit Cards devoted to business credit cards.