BillShrink, a search engine that compares millions of product and service options against consumer needs, released the results of a study showing small business owners could end up paying more than $420 million in incremental finance charges this year because their cards aren’t getting the same protections as consumer cards. The company surveyed more than 300 small businesses, finding many business card issuers have raised rates upward of 15 percent and some cardholders saw rates increase 27 percent in the last three months.
The survey found more than a quarter of all small businesses carry an average balance of $14,572, and smaller businesses (those with under $600,000 in monthly revenue) are more than twice as likely to carry a balance versus paying it off in full each month. Peter Pham, CEO of BillShrink, said part of the problem is that cash-strapped businesses are charging more on their credit cards as business lending continues to decrease.
“We did this research to shed light on the fact that small businesses are victim to the same egregious rate hikes consumers experienced before the oversight laws went into effect earlier this year,” said Pham. “The lack of regulation, coupled with shrinking access to credit, is forcing many business owners to shift spending onto their personal cards, which can become a dangerous cycle negatively impacting their credit scores.”
According to the Federal Reserve, in the last quarter of 2009, business lending at smaller banks was down 13 percent. While businesses wait on proposed repurposing of $30 billion in TARP money to spur business lending, Pham said many small business owners must rely on their credit cards for cash flow. “That’s not a new cash flow strategy, but it is now a more expensive one,” he pointed out.
By contrast, the rates on consumer credit cards only increased an average of 1 percent in the last three months. A comparison of business credit card rates and consumer credit card rates reveals business cards are now seeing similar rate gouges imposed on consumer credit cards before the CARD Act passed in February 2010. BillShrink’s study in August 2009 showed that purchase rates of consumer cards increased to nearly 20 percent in the first half of 2009.
However, the company noted some business card issuers are offering business owners protections they are mandated to give consumers. Capital One, BillShrink noted in the report, is the most business owner-friendly and has adopted quite a few CARD Act provisions: It is the only issuer to offer cardholders what BillShrink terms “fair allocation of payments,” allowing payments to go toward balances with the highest interest rate.