As small business owners become more dependent on credit cards, they are also simultaneously being crunched by the tightened credit market, according to the National Small Business Association (NSBA), an advocate organization for American entrepreneurs.
The annual NSBA Small Business Survey, designed to explore how businesses use credit cards to generate capital, and how they are impacted by their card issuers’ practices, showed 59 percent of small business respondents depended on credit cards in the past 12 months. Of those businesses, 75 percent reported experiencing worsened credit card terms in the past six months.
According to NSBA Chair Keith Ashmus, the creation of small businesses has helped economies recover from recessions in the past, but in this recession, new businesses have been forced to turn to credit cards instead of traditional loan outlets to finance their establishments. “…Today’s entrepreneurs are severely limited in their ability to finance new business ventures by leveraging the value of their home, borrowing from friends and family, or securing a traditional loan,” Ashmus said. “This leaves one clear, often unattractive, option: credit cards.”
The survey also revealed that, among small businesses:
- 34 percent have credit card debt as a quarter or more of their overall debt or financing.
- 40 percent reported paying off their credit cards each month.
- 33 percent use four or more cards.
- 48 percent have credit card APRs of 15 percent or greater.
- 63 percent said their card company had increased their card’s interest rate.
- 41 percent said their card company had reduced their credit limit.
- 23 percent said their card company had switched from a fixed to a variable interest rate.
NSBA cited the survey as evidence for the need for credit card reform benefiting small businesses and voiced its support for S. 414, or the Credit Card Accountability Responsibility and Disclosure Act of 2009, which would seek to ban abusive credit lending practices. The bill will likely be voted on within the week.
See related: Obama to hold town hall meeting on credit cards this week, Senate committee to address credit card, bankruptcy measures, Senators seek ’emergency freeze’ to rate hikes on credit card balances