Small businesses have to get credit still. Unfortunately, the credit they can obtain is not in the form of a business loan from a bank or the Small business Administration as much anymore. These days, more small companies have to rely on credit cards. A lot of funding that used to be readily accessible for small companies just isn’t really there anymore, and unless you are running a Fortune 500 company, it is hard to get the help you need.
Small business credit cards booming
To get their credit, small businesses are using credit cards reports CNN Money. Many who apply for business loans are getting denied, but getting approved instead for a credit card. The lowest since 2008, the first quarter of 2010 had $ 40 billion in lending to small businesses. Less than half of small companies looking for funding in 2009 were actually able to secure a loan of any sort, and as of June of this year, the portion of the stimulus package that was dedicated to small company lending lapsed into oblivion.
What’s keeping lenders away?
The normal way a small business gets a loan to get off the ground, or help them expand, is through either a small or mid-size bank. There is also the Small business Administration. The SBA stimulus is running dry and smaller banks do not have liquidity anymore. When a business owner applies for a loan, to purchase equipment or start a business, they can pledge certain things as collateral, like property. Since property isn’t really as valuable anymore, less credit is going to be made accessible. The only way to get credit then becomes credit cards. Companies can’t free up cash with mortgage loan modification when the property doesn’t have anymore value.
SBA installment loan have a seven year minimum. Credit cards will never be paid off when one starts making minimum payments and never quits. Business credit cards not being under the CARD Act is the only difference between business credit cards and regular credit cards. Credit cards are funded mostly by big banks. Citibank, Wells Fargo, Bank of America, and JP Morgan Chase are some of the banks that lend a lot to credit cards. Think about this; who got one of the most funds from the bailout?
More details available at these sites
CNN Money
cnn. com/2010/07/14/smallbusiness/bernanke_lending_credit_cards. fortune/
NY Times piece about SBA loans
boss. blogs. nytimes. com/2010/07/11/s-b-a-lending-plunged-in-june/
