Small Businesses Rely More On Credit Cards Than Loans Due To Economy
Posted on 03. Nov, 2009 by Entrepreneur Financial in Business Credit Cards, Business Financial News, Small Business Banking
Getting a loan for small businesses be quite a challenge, but a recent article from CNN Money suggests more small businesses are applying for credit cards instead, since that’s all that banks will offer right now. However, running on credit cards alone could be a risky move.
CNN notes that last month JPMorgan Chase had released four new types of small business credit cards with interest rates reaching up to 30%. Since then the company has cut other types of small business loans. This year, with loan programs through the Small Business Administration (SBA), JPMorgan Chase has reduced the number of loans they are handing out. They roughly handed out 1,250 in the SBA fiscal year in 2009 which ended on September 30. Compare that to 2008, when 6,100 loans were distributed to small businesses.
While the global economy has reduced the number of loans, companies are now turning and relying on credit cards to keep their small businesses afloat. The National Small Business Association recently released the results of a survey and found that nearly 60% of small businesses have admitted to using a credit card for business capital within the past year , and 45% had taken out a bank loan.
Experts are saying that credit cards have always been a part at helping small businesses get started however other options are dwindling.
The CNN article says, “The number of small business loans for $100,000 to $1 million fell 23% in 2008, according to an SBA analysis released in May. But the number of loans under $100,000 rose 16%.”
“The data is not that precise,” said Charles Ou, who worked on the SBA survey. “That is the biggest problem.” Ou believes most of that increase to due to the increase in credit card accounts.
One of the small business owners affected by the global economic meltdown is Charles Brooks. Brooks owns Unique Construction, a 29 year old small construction company in Detroit. He has also maxed out 11 business credit cards to keep his company open.
Detroit, which has been one of the hardest hit economic cities in the US, also has one of the highest unemployment rates in the entire country. Because of this, no one is in need of Brooks’ services. ”It is really, really, really slow in Detroit,” said Brooks. ”I have never seen it this bad.”
Brooks had applied for two small business loans, first in 2007 and again in 2008. Unfortunately, neither of the applications were accepted. He said that they had always had credit cards, but they had never really used them until after the loans were denied. “We just never really used them, they were just there.” At the end of 2008, Brooks decided to start paying both bills and suppliers with the credit cards.
Brooks has downsized, going from 4 regular employees to now hiring subcontractors for when there is work. Brooks isn’t sure what he needs to do anymore to keep his company running, other than pray. “We are praying for a better Detroit, a better world.”
