Small Businesses Increasingly Rely on Credit Cards

In a worsening economy, small businesses are growing increasingly reliant on the use of credit cards to cover expenses, despite increasingly unfavorable terms on those cards, according to a new report from the National Small Business Association (NSBA).

According to the NSBA, 59 percent of small businesses owners surveyed reported that they had used a credit card at some point over the previous 12 months to finance their business over the previous 12 months, up from 49 percent in December 2008. The survey was conducted between April 27 and May 5.

"As small businesses across the nation are struggling to keep their doors open, the need for affordable and fair credit-card financing is critical," said NSBA President Todd McCracken. "Credit cards account for the largest--and growing--single source of financing being used by small businesses today."

Survey respondents also reported worsening terms on the credit cards they use. Seventy-five percent of small business owners said their credit card terms had worsened in the past six months.

This increase is occurring despite a rise in the number of small businesses reporting worsening credit-card terms. Asked to evaluate their credit-card terms over the last five years, 79 percent reported worsening terms--up from 69 percent in December 2008. Even more eye-opening: when asked if their credit-card terms had worsened in the last six months, a whopping 75 percent reported that they had.

The survey comes as Congress is moving forward with legislation to provide consumers with new credit card protections, including restrictions on interest rate increases and other changes to credit card terms. The NSBA is urging that similar protections be extended to small business credit card users as well.

"In previous recessions, economic recovery has been led by the creation of millions of new small businesses," said NSBA Chair Keith Ashmus. "Unfortunately, today's entrepreneurs - unlike those of past recessions - are severely limited in their ability to finance a new business by leveraging the value of their home, borrowing from friends and family, or securing a traditional loan. This leaves one clear, often unattractive, option: credit cards."

The NSBA is asking the Senate to enact S. 414, which would extend new protections to the cards used by America's small-business owners.