Subscribe to this BlogSmall biz gets no credit card relief
While consumers apparently deserve relief from abusive credit card practices, (that’s the President’s term, not mine), small business owners, many who are simply just self-employed consumers, aren’t in line for the same Washington help.
Neither the credit card reform legislation that passed the House of Representatives last week nor the consumer-friendly changes to the Truth in Lending Act regulations that go into effect in July 2010 will cover small business credit cards.
In fact, a special amendment to the House bill that would have explicitly extended the same card protections on the table for consumers to small business owners failed to make it into the final House legislation. And while the Obama administration made a big deal back in mid March for the need to unlock the credit markets for small business, the White House seems to be focused on goosing the SBA loan program. That’s well and good for established businesses looking for (and eligible for) large loans, but it does nothing to help small-fry entrepreneurs that have always relied on credit cards to get off the ground. Outside of personal savings and supportive relatives, credit cards are the go-to funding option for start ups. According to the 2008 survey by the National Small Business Association 52% of small businesses with fewer than four employees used a business credit card, while another 10% use both a personal and business card.
Yet Washington has so far thumbed its nose at small business card-carriers. The upshot is that if you’ve got a business card, be aware that you will still be susceptible to some of the very card practices Washington has deemed unfair for straight-up consumers. For example, while the new consumer protections will prohibit card companies from jacking up the interest rate on the existing balance for a personal account if you have stayed current with payments, such willy-nilly rate hikes will still be kosher for business credit cards. As will the practice of applying payments to the debt with the lowest interest rate, thereby assuring the card issuer more revenue as your higher-rate debt (say from a cash advance) doesn’t get paid down. As if running your business wasn’t hard enough already.
– Carla Fried
C'mon small business owners, let's band together and get reform!
Business Credit
Leaving out small business credit cards is a huge mistake. While obtaining an SBA loan might be a good long term solution, small business owners need to be able to pay the bills today. Many businesses only need 20K in revolving credit so the SBA process is overboard for many. I own a small business and I have a few employees. Some months we run low on cash so it's the only option we have. Do we really want businesses to choose to lay people off so that these credit cards can get 22% interest? Another bright idea coming out of Washington. So much for that hope and change.
I don't see what the big deal is. If you're a really small business starting out, and you're not even going to try for an SBA loan, you're using personal credit cards for credit anyway. And if you're an established small business with "business" credit cards – still with a personal guarantee by the way – the rules are the same as they've always been. Do you seriously think that the McCain administration would have restricted ANY of the credit card companies practices?
Don't forget that the banks nail small business coming and going. Not only is credit tight for businesses, the banks put the screws to small business in assessing merchant fees. Every time a customer pays with a credit card, the merchant must hand over 2-3% of that transaction. Then, even though electricity travels at 186,200 miles per second in a copper wire, the merchant doesn't see the credit card batch appear in his or her bank account for up to four days. I can just hear Mr. Rogers voice here: "Children, can you say 'arbitrage'? Sure you can!".
Great! Just AFTER the deadline that ALL credit card companies jacked up rates 1-5% already! How about some RETROACTIVE relief! The credit card companies jacked everyone up (though they'll tell you it's your spending pattern, yeah a pattern that you carry a balance) between March and May already.. so this MAY just protect them from another rate hike come in what 6 months (typical re-evaluation period) ?!?
If the government wants to start regulating rates.. you can also take a look at GASOLINE PRICES!! Seen your pump prices begin to rise this summer?
You betcha! How high will they go before someone steps in and regulates pricing and not just embarass them from not raising it to $5 a gallon again. Attack the real pocketbook issues.. we pay more for ENERGY because that has a direct affect on EVERY product and service we buy.
6 of the top credit card company banks need to be broken up depsite the fiscal crisis not over. They collectively have TOO MUCH power over the consumer in an industry that KILLED off local banking companies who offered competitive rates/deals and had none of the blame in the housing loan debacle.
This reform is more bogus, unnecessary junk. Still, there is no reason to apply it to consumer cards but not small business cards. Arguably, credit card companies will not be MORE likely to ramp up small business card charges even higher since they cannot do so across the board. More poorly thought out nonsense from our government.
No business can run directly from cash flow, especially a new business. While consumers can stop the use of credit cards, a small business utilitizes credit cards as a mechanism for funding while it gets off the ground. No bank will provide a small business with a line a credit. These credit card companies and banks are performing in an unethical manner. Whether it is against a consumer or small business, it is still wrong. It is amazing that the Obama administation is turning its back on the small businesses of this great country.
I ment I "haven't" accessed more credit but rather used it as a loan & have been simply paying it down as I should. AND I have always been paying more than the minimum balance. NUTS!
Unfortunately it's not that simple for a small business to cut up a credit card. I've purchased an existing business & started a new one using credit cards over the last decade. Without them, the opportunity would not have been possible. My income increased & I spent my fair share on taxes & donating to charity. I took advantage of low rate offers for the life of the loan and now the banks are hicking my rates to over 25% and closing accounts for no reason. I haven't missed a payment or defaulted on anything; in fact I have even used the credit but rather have been steadily paying down the balances. I could very well find myself being forced to default down the line due to these hikes. How does it make financial sense for the banks to force a customer into default like this? I'm the customer they can count on to make the monthly payments but having your rates hiked from 3.99% to 28.99% for no reason is simply ABUSE! The ability to maintain my perfect credit is being stripped from me. BofA & Chase should be allowed to fail. Funny how I'm suppose to be ok with the government spending my tax dollars to save these banks, all the while these banks are screwing me into failure. Yes the laws will change for these banks in 2010, but what about now? How many people will be abused and forced to fail until then? Simply isn't logical or wise for the banks, government, or America in general.
From reading this, it's no wonder so many small businesses fail – poor financial management. Revolving Debt, while useful in some specific instances, should never be the primary financial support for any entity. For every dollar of revolving debt you are in, you theoretically need two dollars to escape – one to pay off last month's bill and one to cover the current month. That is a HUGE undertaking, even for a consumer. I'm not saying Credit cards or SBA loans are bad – but there is a huge inherent risk in using them too regularly. The use of these financial products should be the exception, not the rule if you plan to have a healthy (not necessarily successful) business.
The SBA is a good resource. I've used them myself. Plastic is too spontaneous, and many small businesses would benefit from the contemplation required to get funding through non-plastic sources. The SBA also assists an inexperienced business owner in developing the plan and suggesting strategies.
Plastic is good – but the cost of these funds is high, so should not be the sole source.
This is typical. Legislation and regulations are NOT condusive to encouraging small, independent, businesses. With heavy tax liabilities, and no consideration from our elected officials, it seems business failure is predestined!
I vote to lessen the tax liabilites and trivial regulations, and encourage business owners to use that money to hire new people or expand their current operations.
Government has never been for the small business. That is part of what keeps our country going is the small business man but don't depend on the government to help you.
This administration and congress don't respect small business owners one bit. If you are a small business owner and you wanted these clowns at the helm…..thanks for screwing all your fellow entrepreneurs. I guess the only way I can get 'stimulated' by these idiots is if I layoff my employees and start up a wind farm. Frikin Awesome.
This is typical. No one realizes how hard it is to run a small business until you have actually done it. Nothing changes!
Like consumers, most small business is better off to cut up their credit cards, and work off cash flow.
We own a small business and are not eligible for any assistance from anything. No card benifits no nothing. California is driving us out.