Membership Has Its Costs

Small-business owners who use credit cards aren’t benefiting from government protections that consumers can now take advantage of. And, they’re facing rate increases upwards of 30 percent since the Credit CARD act has gone into effect, according to a survey by BillShrink, a firm that compares product options based in Redwood City, California.

One-third of credit issuers raised rates between 20 and 30 percent ahead of the CARD Act, with the average increase coming in at 16 percent. “We predicted earlier this year that small businesses would be subject to rate increases as the banks try to make up for lost consumer revenue resulting from the CARD Act,” said Schwark Satyavolu, CEO of BillShrink. “Since small businesses aren’t protected, they appear to be an easier target for card rate hikes.”

That sounds like bad news for small businesses, already facing a more difficult time getting credit in the first place, and many starting to turn to alternative sources of financing. But the survey found that despite the rising rates, the majority of business account holders pay off their monthly balances, maintaining good credit. BillShrink found that only 27 percent of small-business owners carry a balance, compared to 40 percent of consumers.

Paying off their balances also helps business owners take advantage of upgraded rewards such as more cash back, airline discounts, and even lower interest rates. The benefits are what make these cards so attractive, especially to entrepreneurs who often have to fund their ventures on their own in the early stages.

“Business owners have different needs than consumers and by helping them with their cash flow, targeted business cards can mean the difference between making payroll or reinvesting in the business in order to bring on more clients,” says Ryan Scully, director of Discover's business card division.