Credit Card Issuers Woo Small Business Owners

The fact that many small business owners still do not use credit cards represents a major market for card issuers. According to a survey by Visa and nonprofit small-business counselor the SCORE Association, just 21% of small business owners use business credit cards. Out of the $4.7 trillion in small business purchases during 2005, only $300 billion was spent via payment cards.

As a result, credit card companies are increasing their attempts to sign up millions of small business owners by offering substantial advantages for entrepreneurs. Among the ways issuers are attempting to expand the use of their small business credit cards include MasterCard's new line of industry-specific credit cards, Discover Card's first small business card, and American Express's upscale events.

In the past, many credit card companies included small business owners with consumers. But with the consumer market not saturated with credit cards, companies turned attention to these entrepreneurs in an effort to gain new customers, notes BAI, a financial services industry organization.

What credit card companies discovered is that small business owners have very different needs when it comes to credit cards. Small business owners do not use their credit cards in the same way as consumers, but they also do not have access to capital like larger corporations. And, although small businesses may need credit, they are often forced to pay by check since many suppliers do not accept credit cards.

In 2005, MasterCard (which has had a small business card for twenty years) began allowing cardholders to use a signature-free payment system called PayPass, which tracks receipts for small business owners. Additionally, MasterCard introduced a card in May that provides construction companies with an extra month to pay bills, since construction companies need to pay vendors before getting paid themselves. In the coming months, MasterCard plans to launch credit cards for other markets, as well.

Discover launched its first small business card in June. The Discover Business Card offers credit limits of up to $50,000, as well as downloadable quarterly statements. Additionally, cardholders can change the credit limit on employee cards online and pay those vendors with purchase checks who don't take credit cards.

Meanwhile, Visa has linked credit and debit accounts for its business cards, and is working to get more suppliers such as landlords, utilities, and vendors to accept credit cards.

American Express, which long controlled the small business market, has responded aggressively to the competition. Its credit card already had no preset spending limits, but it improved rewards programs and added networking events for its Open card members, such as an evening with Richard Branson, chief executive of the Virgin Group.

Some consultants believe that the competition among credit card companies benefits small business owners. For example, more detailed and frequent statements help small business owners track where their money is going, while higher credit limits and extended payment schedules offer them a flexibility similar to that of larger corporations. Card issuers hope that by getting some of the advantages and attention of large businesses, small business owners will be more excited about their card offerings.

Published: 3/15/2007

For more information on credit cards and related topics, please see our Credit Card Tips & Advice.

Please click here to apply for a credit card that fits your needs at CreditCardXPO.com.

Want to read more? Below are articles that should be of interest to you:

• 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 b...
• Balance Key to Using Business Credit Cards Effectively - Business credit cards can be a powerful tool for small businesses when used effectively. As such, it is important that business owners strike a balance when business credit cards are used t...
• Credit Cards Can Provide Funding to Entrepreneurs - Credit cards are one option for entrepreneurs looking to get their dream business off the ground. Getting money for your business using business credit cards can be an important piece of...

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.

Cards by Category