Credit Card Issuers Take Aim at Small Business Owners

Credit card issuers are targeting small business owners with a wealth of new card products. Small Business Credit Cards represent a great opportunity for issuers at a time when the broader corporate market has been sluggish. Growth in the number of large employers (with 500 or more workers) has been unchanged since the end of the 2001 recession, with the latest Small Business Administration data showing a current total of 17,000 such corporations.

Meanwhile, over the same time frame, the number of small employers increased 4% to 5.9 million -- growth labeled "tremendous" by the American Bankers Association, a trade group whose members include the largest credit card issuers. Visa notes that the 90% or more of small-business spending that is not charged to credit cards represents as much as $4.8 trillion a year. That could mean huge profits for whoever taps into the small business credit card market.

Recently, American Express launched a cash back credit card for small businesses, while Visa is rolling out a credit card in November 2006 for small firms that spend big -- to the tune of $25,000 or more annually. Discover just entered the small business credit card market over the summer.

When faced with a batch of new credit card options, small business owners should consider a variety of options before they apply, just as consumers should do when looking for a personal credit card. There are a number of factors to consider with business credit cards:

• Interest rates -- While cardholders may not be concerned with the APR on a personal credit card if they pay off their balances each month, business owners are more likely to revolve sizable balances occasionally if revenue slows. For business that make purchases costing several thousand dollars, and then pay them off over several months, fixed-rate credit cards provide greater stability than credit cards whose variable rates change with short-term interest rates.
• Cash-back rewards -- Business credit cards offer cash-back rewards just like consumer credit cards do. But before small business owners are drawn in by cash back offers like 5% on office supplies, 2% on gas, and 1% on all other purchases, read the card's terms carefully. Often, carrying a balance at a high interest rate erases any savings such a credit card provides.
• Foreign exchange fees -- Business owners often place orders for items from overseas suppliers, meaning they are more likely than consumers to get hit with these fees, which often amount to 3% of the purchase cost. But there ate credit card issuers that leave off foreign exchange fees. Consumer Action urges small businesses to learn how large foreign purchases are treated by the credit card issuer.
• Universal default -- Certain credit card issuers will instantly boost interest rates by up to 30% if a consumer makes lake payments on other borrowed money, such as a car payment. Business credit card customers are not necessarily exempt.
  Separately, small business owners who value customer service may want to apply for the Discover Business Card for Small Business. Discover is hoping small business owners will be drawn in by its goal of resolving customer issues on the first phone call. If the problem is not resolved, it will be assigned to a single Discover employee who will deal exclusively with the cardholder until the problem is fixed.

Published: 3/15/2007

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Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. CreditCardXPO.com recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.

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