Small business credit cards bloom, specialize

By Jeremy Simon

According to a survey by Visa and nonprofit small-business counselor the SCORE Association, just 21 percent of small business owners use business credit cards. Out of the $4.7 trillion in small business purchases during 2005, only $300 billion was spent via payment cards. Card issuers smell opportunity, and one way they're going after small business owners is by creating industry-specific business credit cards.

The small business credit card offernings include MasterCard's new line of industry-specific credit cards, Discover Card's first small business card, and American Express's upscale events.

They're intended to meet the different needs of small business owners, who do not use their credit cards in the same way as consumers. They do not have access to capital like larger corporations, and although small businesses may need credit, they are often forced to pay by check since many suppliers do not accept credit cards.

In 2005, MasterCard (which has had a small business card for 20 years) began allowing cardholders to use a signature-free payment system called PayPass, which tracks receipts for small business owners.  MasterCard also has a card that provides construction companies with an extra month to pay bills, since construction companies need to pay vendors before getting paid themselves.

Discover launched its first small business card in June 2006.s  The Discover Business Card offers cash back of 5 percent of office supplies. 

Meanwhile, Visa has linked credit and debit accounts for its business cards, and is working to get more suppliers such as landlords, utilities, and vendors to accept credit cards.

American Express, which long controlled the small business market, has responded aggressively to the competition.  Its credit card already had no preset spending limits, but it improved rewards programs and added networking events for its Open card members, such as an evening with Richard Branson, chief executive of the Virgin Group.

Some consultants believe that the competition among credit card companies benefits small business owners.  For example, more detailed and frequent statements help small business owners track where their money is going, while higher credit limits and extended payment schedules offer them a flexibility similar to that of larger corporations.  Card issuers hope that by getting some of the advantages and attention of large businesses, small business owners will be more excited about their card offerings.

Published: January 9, 2007

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