The pros and cons of the latest trend--using credit cards to finance your business
Banks are still courting small businesses, but thanks to astruggling economy and increased defaults, lending standards remaintough, particularly for unsecured microloans. There is one sourceof capital, however, that is still plentiful even in tough times:good, old-fashioned plastic. And entrepreneurs have been banking onit, according to the SBA Office of Advocacy's annual microloanstudy. While traditional commercial lending remained flat for 2001,the total number of microloans, or loans of less than $100,000,climbed 10 percent among banks surveyed--and mostly thanks tocredit cards.
Banks typically don't show off their numbers formicrolending by credit cards, so the study's authors relied ona bit of subtraction to get answers. They first compared the totalnumber of 2001 microloans to 2000 figures and arrived at the 10percent jump, and then removed credit card banks from the results.They noted that the increase in microlending dropped to less thanhalf a percent. That points to significant growth in creditcard-based lending, says Charles Ou, senior economist at theSBA's Office of Advocacy. He posits that over the past fewyears, banks have seriously stepped up their small-businesscampaigns and made cards available to a larger pool of businesses,thanks in part to better credit-scoring methods. Today, a businessowner's good standing in the consumer card department can winhim or her easy approval on a corporate card application.
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