Small Businesses Turning to Credit Cards as Traditional Bank Loans Dry up
Ask any small business owner and they will surely tell you that traditional small business loans and lines of credit just aren’t readily available anymore.
Charging it up
Banks are simply not offering much in the form of small business loans lately, so small business owners are getting their money where they can, and that is generally on credit cards.
Although most small business owners would rather secure a small business loan that is backed by the Small Business Administration, and has a capped, fixed interest rate, the truth is that these types of traditional loans have simply dried up.
Small Business Loans Disappearing
President Obama recently chastised those large banks that have received tens of millions of dollars in TARP money for not easing the lending practices for small businesses, although the jury is still out regarding whether his new policy changes will have any effect.
As a result, more than 60 percent of small business owners have used a credit card in the past year to access business capital, as reported by the National Small Business Association.
Although credit cards have always been an option for small businesses, the fact of the matter is that they are now often their only option.
Small Business Credit Cards Taking Over
According to the Small Business Administration, small business loans of $100,000 to $1 million fell nearly 23 percent in 2008.
And, since April, small business lending from the nation’s 22 largest banks has dropped nearly $8 billion.
As a result of the lack of traditional loans for small businesses, many creditors are now swooping in with small business credit cards, such as JPMorgan Chase’s Ink card, which features an interest rate of nearly 30 percent.
Many small business owners – especially those individuals are not able to obtain traditional loans anymore – must use credit cards to stay afloat.
And, given the hit that many small businesses have taken as a result of the lackluster economy, the trend of credit card use among small businesses is only likely to increase.
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