According to the Federal Reserve, 83 percent of U.S. small businesses used business and personal credit cards in 2009. Small business owners have a long history of turning to credit cards to start their companies and keep them running. American Express alone processes $1.6 billion worth of transactions from business owners every week.
Credit cards are a convenient way to pay for everything from raw materials to travel for sales calls when properly used. Cash flow management and reliable recordkeeping of spending on a monthly and annual basis are two benefits of smart card use.
Due to the enactment of the CARD Act, Federal Reserve issued a report on how similar regulations would impact small business credit cards. That report, issued in May 2010shared a wealth of information on small business credit card usage, such as:
• Credit cards usually have higher credit limits than consumer cards.
• Credit cards are more expensive for credit card companies to issue and service than consumer cards.
• Credit card losses for business cards run 20 percent to 30 percent higher than with consumer cards.
• Small business owners use credit cards, but only a small percentage (18 percent) carry a balance. By contrast, about four in 10 households carry a balance on a consumer card.
• Approximately 20 percent of small business owners tried to get a credit card in 2009; four out of five of them sought a business (as opposed to a personal) credit card. Of those, about three-fourths were approved. One third of small business owners tried to get a line of credit or a loan at a bank; half of them were successful.
The Federal Reserve concluded that business owners would benefit from having the same types of protection that consumers have under the CARD Act. However, the Fed said it's not apparent that the benefits of extending the CARD Act to small business "outweigh the potential risk of increased cost and reduced credit card availability for small businesses."
Loretta Hunnicutt
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