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As we wind up Q2, what we can see from a glance at the news is that entrepreneurs (read: small businesses) are getting the sharp end of the credit stick. Some of the statistics are jarring and the quotes that I read from small business owners from all over the country make me fear for worsening unemployment numbers in the next few quarters.
From a WSJ.com article over the weekend:
For two years, Jack Diamond used his Bank of America small-business credit card to finance his plants-and-aquatics nursery business … he would use the credit card to purchase plants, then pay down his balance after he sold lilies, pond plants and aquatic fertilizer to customers.
Last September, Bank of America Corp. cut the $46,000 credit line on his card to $27,200, just a few hundred dollars above his current balance. He couldn't buy the plants, seeds and equipment he needed for his spring selling season. He laid off six of his eight employees.
Another business owner saw her rates on climb from 7.99% to 33% within 6 months …which negatively affected her credit score …which caused her to be turned down for a small business loan:
"We're back to a (limited) line of credit, which severely limits our growth. I'm certainly not going to go out and hire people."
So while bankruptcies are up for small businesses, can we discount the fact that they’ve seen the interest rates on their business credit cards rise astronomically? I ask again, how can business owners be expected to pay more for their debt when they have less coming in because their customers are also being squeezed on several fronts?
Credit card issuers are trying to manage their risk – and they’ve bitten off a lot of it.
Until recently, credit-card issuers avidly courted small-business owners. Visa Inc., American Express Co., MasterCard Inc. and Discover Financial Services had an estimated 29 million business credit cards in circulation in 2008, up from just five million in 2000…
And after being courted by the biggest names in finance, small business owners took the bait. But when all of this gets sorted out, I don’t think any logical person will ever feel that they are in a “partnership” with their credit card issuer ever again:
Kristie Jakeman of Jensen Beach, Fla., saw her credit score fall to 680 from 740 in January after Advanta started reporting her business credit card to credit bureaus as delinquent.
Her troubles began last summer after Advanta moved to raise her 7.99% interest rate to 9.9% in September, then to 21.9% in October. She complained to the company and says it promised to lower her rate but didn't. She continues to fight to have the charges reversed.
The higher payments made it harder to keep up, and she says she finally decided not to make her December payments until the company agreed to work with her. Advanta raised her rate to 33%. A spokesman for Advanta declined to comment.
See the full article at wsj.com: http://online.wsj.com/article/SB123879980211788403.html
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