Small businesses rely heavily on credit cards

Contrary to popular belief, there is still credit for small businesses to get. Unfortunately, the credit they can obtain isn’t 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. Unless you’ve a Fortune 500 business, there is not funding accessible to you anymore.

Tons of small business credit cards

According to CNN Money, more small company owners have to rely on their credit cards to get the funding they need. Companies are approved for credit cards as very easily as they’re denied for business loans. The first quarter of 2010 saw a reduction of $ 40 billion in lending to small businesses, which is the lowest level since 2008. Since June this year, there is no more money for lending within the stimulus package, and in 2009, not even half of small businesses got the lending they needed.

What’s keeping lenders away?

The normal way a small company gets a loan to get off the ground, or help them expand, is through either a small or mid-size bank. The Small business Administration is something that can help as well. Smaller banks don’t have the liquidity to lend and also the SBA stimulus has nothing left. When small company owners are trying to get a loan, they have to put up some collateral, like property. Property is not valued very high anymore making credit less available. Credit cards then become the only source of credit available. If a piece of property is not as valuable anymore, it is hard for a business to get mortgage loan modification to free up cash.

Somebody has to have all the benefits

An installment loans from the SBA includes a minimum term of seven years. Credit cards, on the other hand, can take forever to settle if one gets locked into making only minimum payments. Business credit cards not being under the CARD Act is the only difference between business credit cards and regular credit cards. The main source of funding for credit cards is the biggest banks. Huge amounts of money are lent by JP Morgan Chase, Citibanks, Wells Fargo, and Bank of America. Who got one of the most bailout funds?

Find more details here

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/