As traditional loans dry up, banks are funneling more of their small business lending through credit cards.
Want a loan for your business? Hit the plastic. That's about all banks are going to offer -- and the terms are much less favorable than traditional lines of credit.
In one notable example, JPMorgan Chase (JPM, Fortune 500) last month unveiled its Ink suite of four new small business credit cards, with interest rates as high as 30%. Meanwhile, the bank has slashed other small business lending. Its lending through the Small Business Administration's primary loan program fell 80% this year, from 6,100 loans in 2008 to 1,250 loans in the SBA's 2009 fiscal year, which ended Sept. 30.
Unlike credit cards, which carry variable interest rates and credit limits that can be cut or changed at the bank's whim, SBA loans offer a fixed amount of money at an interest rate capped by the government. They're safer than credit cards, but these kinds of traditional loans have dried up throughout the recession.
What credit remains is coming most often from credit cards. Almost 60% of small business owners have used a credit card in the past year for business capital, according to a recent survey by the National Small Business Association (NSBA), an industry trade group. In contrast, 45% of those polled had a bank loan.
"Today's entrepreneurs are severely limited in their ability to finance new business ventures by leveraging the value of their home, borrowing from friends and family, or securing a traditional loan," NSBA Chair Keith Ashmus wrote in an accompanying report. "This leaves one clear, often unattractive option: credit cards."
http://money.cnn.com/2009/10/26/smal...ion=2009103117
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