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July 17, 2010

Small Business Credit Cards

POLITICS - Credit card companies in the United States Prime Rate are recommending business owners get small business credit cards to smooth their transactions and keep track of finances easier. The US prime rate website FedPrimeRate.com is also recommending small business credit cards for the American market.

"Small business owners all across America have been struggling to get access to loans as banks continue to hoard cash. Though the American economy is growing again, the banking sector is still hurting, with many banks still facing closure by the FDIC." says Steve Brown from FedPrimeRate.com.

The Federal Deposit Insurance Corporation (FDIC) has closed 90 banks so far in 2010, a faster pace compared to bank closures for the same period in 2009 during which the FDIC closed 57 banks. The FDIC shut down 139 banks during all of 2009.

For businesses what people really need is reasonable terms and conditions and there are very few credit card companies offering that right now, but its what is needed if the United States is to pull out of its current debt crisis.

Many banks have been scaling back on lending to small businesses, especially fledgling ones. Since the start of the American Recession and the collapse of the American housing and mortgage industry the USA has seen lower home sales, real estate deflation, rising unemployment and the threat of a depression. To kickstart the economy back into working order the Obama administration went down the road of infrastructure spending, borrowing billions from China and using that money to prop up the American economy.

This contrasts with the Bush administration which simply bailed out the banking industry and was all too happy to leave the mess in Obama's hands when the White House swapped one president for the other.

During the economic chaos the credit card industry started making cutbacks (which any economist will tell you is the WRONG thing to be doing during a debt crisis). They made it more difficult for people to apply for a credit card and now do substantially more background checks before granting them to would-be consumers. They also cut back on bundling services and focused on selling the debts as securities on the New York Stock Exchange (the same way mortgage debts were sold on the NYSE). This meant less risk for the banks and more risk for investors in case people start defaulting on their credit card payments.

During the height of crisis business credit cards became so risky and unprofitable for banks that many business credit card accounts were either closed, frozen or had their credit availability limited. One such company Advanta, which specialized in small business credit cards, closed up shop on May 30th 2009 and filed for bankruptcy in November. The FDIC later shut down Advanta Bank Corporation in March 2010.

The US Federal Reserve says less than 20% of small business credit card holders carry a balance. Over 80% pay off their debts immediately.

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