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Credit Cards Crunching Small Business Owners

Posted by: John Tozzi on July 11, 2008

I just caught this piece by Simone Baribeau in the Washington Post last week on small business owners caught in credit card debt:

Entrepreneurs have long used credit cards as quick financing. But with the sputtering economy, tightening credit market and cards’ notoriously changing terms, more small business owners are struggling to pay their debt, accumulated on personal as well as small-business credit cards.

As credit standards loosened at the beginning of the decade, banks expanded their small-business credit card offerings. Compared with the consumer credit card market, the small-business market was virtually untapped and potentially lucrative, because business credit card use tends to be high volume and paid in full at the end of the month.

The result was a boom: Small businesses will charge 2 1/2 times more this year than they did in 2002, when credit card charges ran about $140 billion, according to estimates from TowerGroup, a financial service research and advisory firm.

A few months ago, an entrepreneur emailed me to say he had stopped using plastic completely because of rising fees and interest rates. It’s difficult for me to imagine how most businesses could function without credit cards. But have any other small business owners cut up their cards after piling up credit card debt? If you have, drop me a note at john_tozzi [at] businessweek [dot] com.

Reader Comments

Sam Miller

July 12, 2008 02:50 PM

We do not use credit cards. It simply is way too expensive. Just manage the business using cash flow generated by the company.

Jorge Santiago

July 15, 2008 12:40 PM

We run a dry cleaning business and have seen really bad times in the past but never completely cut credit card processing from our methods of payments. What we have done is require a minimum and on some days simply turn off the credit card pos. We also shopped around for banks providing such application and found that costs and charges vary depending on the bank. Right now not accepting credit card payment is simply out of the question for our customers.

Bo Stenberg

July 16, 2008 02:10 AM

What is the effect of offering a small discount for using cash?


July 18, 2008 05:36 PM

Companies should not rely on credit cards, especially if they are a small business struggling to stay afloat. If you are not generating enough cash flow with your business alone, innovate/make changes to your business model to generate some and pay the bills. Either that, or go out and seek a little seed capital. Look at these tips ....

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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