Owners Using Credit Cards in Dearth of Small Business Loans

A report in BusinessWeek says that small business owners are turning to credit cards to fund their businesses because they often can’t qualify for bank loans, particularly with the more stringent requirements many lenders have instituted in the last year.

Small business owners are going for the plastic, even though the fees are much higher — sometimes as much as 30 percent — than a typical business loan. Typically small businesses, particularly those that are relatively new, don’t have the collateral or seasoned financial reports that banks want in order to make loans.

Citing a survey by the National Small Business Association, BusinessWeek says that the percentage of entrepreneurs using credit cards has jumped from 16 percent in 1993 to 44 percent today, while the proportion of entrepreneurs using bank loans dropped from 45 percent to 28 percent over the same time period.

The credit card companies have also been more aggressive in seeking small business customers. Citing a report from Mercator Advisor Group, BusinessWeek reports that card issuers send out more than 720 million offers each year, 26 for each small business firm.