Small Businesses Who Use Credit Cards Protected By New Legislation

Small businesses have been forced to use business credit cards during the recession to pay their bills and add to their capital needs since funding from banks has been virtually non-existent. There is good news and bad news about business credit cards and small business finance.

First, the good news. The U.S. House of Representatives recently passed a bill to protect small businesses by limiting the ability of credit card companies to increase interest rates on existing balances except in limited circumstances. The bill also restricts a credit card company’s ability to impose late fees, double cycle billing, and retroactive rate hikes.  The bill is scheduled to go to the Senate where there is hope that it will pass.

The Small Business and Entrepreneurship Council does not like the conditions of the bill. They say that it imposes price controls on the credit card industry, leading to tighter credit. My opinion? This is fear-mongering. Credit card companies have abused both consumers and small businesses for years. Don’t believe that they will simply quit extending credit when they have made record profits for years. How will their companies continue to operate? They may scream – and loudly. The banks will lobby against this bill. In the end, they will still extend credit, in some way, as that is their business.

There is one small business credit card company, Advanta, which is essentially shutting down. Advanta says it is facing uncollectible losses from small business accounts, up to 20%. After June 10, customers will still be able to make the same minimum payments, but no new credit will be extended.

Another point is that there is confusion over whether or not this bill covers small business credit cards or just consumer cards. The bill does cover small business cards, which is a good thing.

As a financial consultant, I don’t like the use of business credit cards to finance your small business. However, I’m a realist. Right now, you don’t have any choices. So, I want to give you my best advice. Here are some points to consider.

Try to keep your credit limit from being cut. Here’s how:

  • Pay off your balance every month if at all possible. If it isn’t possible, pay as much above the minimum as you can.
  • Check your credit reports from all three credit reporting agencies often. If there are any negative marks on your credit, move quickly to correct them.
  • Make all your payments on time, even a little early to be sure they are posted on time.
  • Apply for an additional business credit card. You  need good relationships with more than one financial institution.
  • Don’t hold any inactive accounts. If you have a business credit card that you never use, start using it occasionally. Credit card companies are closing accounts that are never used and you want to keep your card open.
  • If you receive a notice that your credit limit is being decreased, find out why and try to get your credit limit reinstated. All they can do is say no.

The Senate is expected to vote on this bill on Thursday, May 14. Whatever happens, stay creditworthy!

Rosemary C. Peavler, Financial Consultant and Writer/Guide for, a New York Times Company


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