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Small businesses turn to credit cards

Credit cards

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Bob Moon: You've undoubtedly heard the old saying: You have to spend money to make money. For most entrepreneurs, though, it's more like you have to borrow money to make money.

But just try getting yourself approved for a loan these days. A recent survey from the National Small Business Association found that more than half of small business owners are having trouble borrowing money and as Stacey Vanek-Smith reports from the Marketplace Entrepreneurship Desk, that's creating a business opportunity of a different kind.


Stacey Vanek-Smith: Entrepreneurs may not be able to get credit these days, but they can get credit cards.

The Discover Business Card, the MasterCard Business Card, The American Express Plum Card... business credit cards are growing 27 percent a year, one of the few bright spots in an industry that's been slammed by growing default rates and thrifty consumers.

Robert Manning is the author of "Credit Card Nation."

Robert Manning: Small business loans are becoming a new jewel in the credit card industry. Loans that banks don't want to offer at single digit interest rates they now are offering it through business cards at double digit interest rates.

But many entrepreneurs are so desperate for money they're willing to pay the price.

Ze'ev Feig: The interest rate is not as significant as really getting the capital.

Small business owner Ze'ev Feig runs high end sportswear company Zensah. He says even though he has excellent credit and his company's profits are growing, banks won't lend him money… His capital comes from a stack of plastic.

Feig: Building the Internet site, marketing, paying for trips... All of that came from really the credit cards.

To compete for customers like Feig, card companies are offering more options and perks.

[Business credit card ads:]: ...Small business savings on car rental, automatic...

...5 percent cash back bonus on office supplies...

...Having the option to defer payment for up to 2 months interest free could really help with cash flow when you build new stores...

The Visas and Capitol Ones of the world are offering new services, too, like free consulting and online social networking communities.

Discover Small Business Watch's Sastry Rachakonda says ease and lack of scrutiny are also part of the appeal.

Sastry Rachakonda: Typically, if you need money from a bank, there is an immense amount of documentation that you need and on an ongoing basis if you need $8,000 here and $5,000 there, it's just easier to take it on your business credit card.

But credit card companies could end up taking it on the chin if the declining economy takes a lot of small businesses with it, says industry expert Robert Manning.

Manning: Right now, the credit card industry sees this as a great opportunity to augment their losses, but if the economy continues to recede and if small businesses do take the brunt of it in the short term, the banks will be losing money on the personal credit card side as well as the business side.

It's not a perfect union for small business owners either. Manning says a lot of business credit cards are not subject to interest rate caps, so if a company hits the skids, entrepreneurs could end up paying rates that top 25 percent.

I'm Stacey Vanek-Smith for Marketplace.

About the author

Stacey Vanek Smith is a senior reporter for Marketplace, where she covers banking, consumer finance, housing and advertising.

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