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Why Banks Trying to Reel in Small Business

Why Banks Trying to Reel in Small Business

Every business has the need for funding to allow for business growth and bring in cash, especially during an economic downturn. Now that the economy is showing signs of improvement, the credit card companies are now trying to pull in small businesses to apply for and receive a credit card to help their cash flow.

According to an article publish by the Los Angeles Times, business owners will see more credit offers coming in the mail in the near future. Why are credit card companies targeting small businesses? The reason behind it is that the regulations set forth by the US government affected personal credit card holders and not business card holders.

There is very little control over business credit cards according to online sources. The issuing business card financial institution can increase the rates if the card holder fails to make a timely payment. A business is not exempt from penalties for late payments. This means the card issuing company benefits from giving a card to small businesses because they can irrevocably increase the interest rate.

The reason for the higher interest is that many card issuing companies have suffered losses related to non-paying small businesses. The penalty helps them protect themselves from a loss. Terms are harsh and the approval rate is lower because there are many business enterprises that have bad credit and are unable to get a credit card elsewhere.

New credit cards can no longer be used easily for starting a business or expanding a business because of strict analysis before the card is issued. Because of the high interest rate, a slow payoff could mean the “death” of a business because of the borrowing expense incurred.

At one time, the number of small businesses that used credit cards as a form of financing business expenditures was high but this figure is quickly declining. This form of financing is no longer ranked high in the list of cash flow methods.

Even though the figure is dropping, credit card companies are still trying to pull in small businesses. Most small businesses, if they have a credit card, pay the full balance off on a monthly basis in order to save on the credit card fees and interest rates. In spite of this, the financial institutions are still trying to bring in more businesses even though this is not the preferred method of financing for a business.

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