Thursday, 24 January 2013

Small Businesses Utilize Credit Cards More Often, Says the Fed

According to the latest reports published by the Federal Reserve Board, small business credit card usage and the usage of credit lines has increased, dramatically.  As reported by the Washington Post, the increase was to from 34 percent in 1998 to nearly 50 percent in 2003.  The survey is conducted once every five years, and this is the most recent update.   Another interesting fact is that major credit card providers are targeting business owners offering business lines of credit more readily than ever.

What does this trend indicate and how does it affect the small business owner?  For those business owners that are "in on this latest trend" the outlook is good. Now, they can obtain the necessary financing they need instead of having to go through all of the work normally required to obtain a small business loan.

Years ago, to get business financing you had to really jump through hoops - supplying your bank with a business plan, financials, bank statements, etc.; it was so cumbersome and restrictive that only financially stable businesses would get approved - or business people who were extremely persistent at filling out paperwork and trying to work the system.  Many viewed the extensive documentation and application process as being more of a hassle than it was worth.

Many business strategists today say that with newer, less restrictive lending requirements that grant business credit based largely on personal guarantees from high FICO score individuals, it makes sense to amass large quantities of business credit and to use that capital to seize and take advantage of profit bearing business opportunities.  In a sense, it puts smaller business people into "the big boys' game" of using leverage to execute "big ideas."

Utilizing credit in this form is the growing trend, but it also makes sense.  It is easier to obtain, easier to apply for and most definitely applicable to most small business needs; Visa, MasterCard anyone?

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