What’s Next For Small Business Credit Cards?

During the past twelve months we have seen a paradigm shift in small business lending to say the least. Once a staple of the industry, small business credit cards are now a rare find. As previously reported on this blog, banks left and right have been terminating business cards; including Advanta, Chase, and Citi. Many cardholders have also complained about higher interest rates and lower credit limits.

What’s Next?
Although there is some dispute as to whether or not the recession is over, there’s no denying that economic conditions have significantly improved since last winter. According to the United States Commerce Department, the U.S. economy grew 3.5% during the third quarter. Positive GDP growth has also been reported by some other countries, with China leading the way so far at 8.9%. If economic conditions continue to improve, we most likely will see business credit cards trickle back onto the market.

What Will Be Different?
It’s important to note that business cards are currently excluded from the Credit Card Reform Act of 2009. Therefore, it's possible we may experience the same "bait-n-switch" complaints on credit card deals in the future. That being said, due to increased scrutiny and regulation of the industry, these questionable practices will likely become far less common.

It is also likely that new cardholders won’t be granted high credit limits, at least initially. Before the economic turmoil erupted, many new customers were given extremely high limits; often in the tens of thousands of dollars. For now, it is unlikely we will see these same spending limits awarded to new accounts.

Furthermore, applicants with lower credit scores will probably not be approved. We may even see business credit card deals explicitly mention they are only seeking those with excellent credit profiles.

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Advanta Settles with The FDIC Over Fair Trade Violations

Here's some good news for all those who used to have an Advanta business credit card account. As you may already know, Advanta shut down all business credit cards accounts on May 30, 2009. No account was spared. Small business owners who relied on their Advanta credit cards to buy equipment, inventory, etc. were forced to find new sources of temporary financing in a hurry. This, of course, made lots of cardholders very angry, since business credit cards and lines of credit are not easy to find in the current credit crunch and recessionary economic environment.

To add insult to injury, Advanta also raised the interest rate on many accounts without providing fair warning. This happened with my own Advanta Platinum Businesscard account. Advanta ended my 0% intro APR period early, and without warning. Moreover, I'm still calling Advanta every week, as I'm trying to resolve a problem with an opt-out correspondence. All very vexing stuff.

So here's the good news: Advanta has settled with the Federal Deposit Insurance Corporation (FDIC) over fair trade violations related to business credit card accounts. Bottom line: if Advanta modified your interest rate without fair warning, you may eventually receive a restitution payment.

Here's a clip from Wednesday's press release:

"...Under the settlement, Advanta has agreed to an order to cease and desist, to pay restitution, and to pay a civil money penalty in the amount of $150,000. In addition, restitution of approximately $14 million will be paid to businesses that used Advanta's Cash Back Reward program and $21 million to accountholders whose accounts were repriced. In agreeing to the issuance of the order, Advanta did not admit or deny any liability.

Advanta's 'Cash Back Reward' program advertised a percentage of cash back on certain purchases by business credit card accountholders. Due to the tiered structure of the cash back payments, however, the advertised percentage was not available for all purchases. As a result, it was effectively impossible to earn the stated percentage of cash back reward payments. The FDIC concluded that the Bank's solicitations were likely to mislead a reasonable customer and that the representations were material and that therefore, the Bank engaged in a pattern of deceptive acts or practices in violation of Section 5.

In addition, numerous complaints were filed regarding Advanta's substantial annual percentage rate (APR) increases on the accounts of small business owners and professionals, who had neither exceeded their credit limits nor were delinquent in making payments on their accounts. The FDIC determined that Advanta's rate increases had been implemented in an unfair manner, that Advanta failed to adequately notify accountholders that their APR had increased, the amount of the increase, the reason for the increase, the procedures to opt-out and the consequences of an opt-out. The repricing caused substantial injury to customers, withheld and/or provided inadequate information that could have enabled the customer to reasonably avoid the injury, and provided no benefit to the customer or competition.

'The Advanta settlement demonstrates the FDIC's commitment to having banks take responsibility for ensuring that they do not engage in unfair or deceptive acts or practices in connection with the banking products and services they offer,' said FDIC Board member Thomas J. Curry. 'Any person doing business with an insured depository institution can expect to be treated fairly, and any such entity that engages in unfair or deceptive acts or practices should be aware that the FDIC will pursue such practices with all of the legal authority at our disposal.'..."

OK, so here's an example of one of the worst credit cards ever:



Yup.

I now pose this question to readers: is Advanta the worst business credit card bank ever? As always, your comments are very welcome, and appreciated.

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Advanta Will Close All Business Credit Card Accounts on May 30

The outlook for domestic and international financial systems and institutions appears to be improving, as evidenced by new record lows for the 3-month London Interbank Offered Rate (LIBOR) and a narrowing TED spread (for more about the TED spread, click here.)

But one could argue that the improvement in interest rates is not a good indicator of the health of banks. Low, short-term interest rates, one could argue, are more a result of dramatic rates cuts and quantitative easing by the Fed and other key central banks across the industrialized world than they are the result of banks' improved condition. Yes, short-term rates are extremely low right now, but banks are still failing at an alarming rate. In fact, in the United States, there were 8 bank failures during April 2009, and 7 more have failed so far this month.

Advanta Will Close All Business Credit Card Accounts on May 30

Advanta, a bank that specializes in providing credit cards to small businesses, recently announced that the company will close all business credit card account on May 30, 2009. According to the Advanta's Account Closure FAQ page, May 29, 2009 will be the last day that Advanta business card holders can use their account to make purchases. Also from the FAQ:

• If you plan on opening another business credit card account to help fund your operations, don't look to Advanta for a new account. The company is not accepting new credit applications. If you're worried that your credit score will be adversely affected by the reduction of available credit, or you simply need another card to use for temporary financing, other major banks like PNC, Citi®, Bank of America and Chase are still offering business credit cards. Also, look out for snail-mail business credit cards offers. These so-called "pre-approved" offers usually have slightly better terms, conditions and rewards than their online counterparts; if you are going to apply for a new business card, you might as well go for the best possible deal.
  
  An excellent alternative to getting another business card is to get a small business loan via a peer-to-peer lending site like Prosper.com, VirginMoneyUS.com or the industry leader Lending Club.
  
• Advanta's online account management system will continue to function after May 30. The company has no plans to remove or limit cardholder access to transaction data. Customer service will also be available after May 30.
  
  
• Advanta accountholders will not be forced to pay their entire balance on, before or after May 30. Accountholders will still be able to pay down their account over time, according to the terms and conditions associated with each account.
  

Here a clip from the email Advanta sent out to business cardholders today:

"...Your Advanta Business Card account is funded by an independent trust which owns the balances you owe on your account and provides funding for new transactions. We expect the trust to stop funding activity on our accounts. The trust also restricts our flexibility to fund activity on your account. Unfortunately, as a result, effective May 30th all Advanta Business Credit Card accounts, including your account, will be closed.

This means that you will not be able to use your card or account for new transactions, including purchases, checks and balance transfers beginning on May 30th. We understand that you may have written checks on your account before May 30th and we will make every effort to honor those checks that are presented to us for payment by June 3rd. If you use your Advanta card to make automatic recurring bill payments, you will need to make alternative arrangements for those payments promptly.

It is important to understand that you are not required to pay your entire balance at this time. You may continue to pay down your account balance over time, as allowed under your Advanta Business Card Agreement.

You will not lose the rewards that you have earned. If you participate in a Cash Back program, you will receive a check for the amount of any accrued rewards more than $1.00 as long as you make the required minimum payments and your account remains in good standing. If you participate in a Business Rewards program, you will have at least 60 days to redeem your points as long as you make the required minimum payments and your account remains in good standing.

We deeply regret the impact this action will have on your business and very much wish it was not necessary..."

Advanta did not apply for any TARP funds, but, maybe it should have. The lion's share of the company's revenue comes from it's credit card business, and the company recently reported that delinquencies have doubled year-over-year. Right now, you can buy shares of Advanta (trading on the NASDAQ exchange with symbol ADVNB) at $0.79 a piece. A year ago, the stock was trading at $7.60 per share. Two years ago it was trading at $25.68 per share.

How This Advanta News Has Affected Me

I liked my Advanta Platinum BusinessCard a lot when I was enjoying a 0% introductory APR, and continued using it sporadically when the intro period ended and my purchase rate jumped to 7.99%. I was using this card to fund a new business venture.

Last month, Advanta gave me an ultimatum: you can either continue to use your card and accept a 17.15% interest rate, or we will close your account and let you pay down your balance over time at 7.99%. I was given a month to make up my mind. 17.15% is a subprime rate, and I'm not a subprime borrower, so I chose to opt out of the new terms. I did not want to disrupt my cash position by paying the balance down to zero right away, so I chose instead to transfer the balance to a feeless balance transfer American Express consumer card.

Some months ago, both my CitiBusiness and Chase business credit cards were closed (you can read about it here), and now my Advanta card is gone. I'm now left with two business credit cards, and both are from Bank of America. I received a snail-mail offer for a Bank of America Business MasterCard® last week, and since the terms appear reasonable, I've decided to apply for this card.

I am hoping banks stop closing accounts and cutting credit lines soon, because, to be perfectly honest, I am really getting tired of this game.

For more on this Advanta news, check out this Consumerist.com article. You should also check out the content and comments at this article.

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Chase "Forces" Me to Close My Favorite Business Credit Card

It's the old credit card bait 'n switch. The credit card banks bait you with attractive terms and generous rewards programs to get you to signup. Then, they wait. They wait for you to accumulate a large enough balance, then jack up your interest rate. I've been reading about this a lot on other websites recently; now it's happened to me, with my Chase business credit card.

Just got a snail mail notice from Chase informing me that the company is going to raise the interest rate on my favorite business credit card, from a fixed rate of 9.9% to a variable rate of (Prime + 11.99%) = 15.24%. 15.24% is now the interest rate floor for this card, since Prime is not likely to go any lower. Of course, I have the option to opt out of the change. This would cause my account to be closed, and I would then continue to pay the balance down to zero at the original 9.9% APR.

Thankfully, I'm prepared for this contingency. I plan on paying the balance off with some cash from savings and a small loan via Lending Club


I don't have to borrow any money via Lending Club to payoff my Chase business card, but I really like the idea of Lending Club -- bypassing the banks and borrowing from regular folks across the country -- and I want to go through the process of borrowing through Lending Club myself so that I can report on my experience here in this blog.

To be perfectly honest, I really like my Chase business card, but, clearly, it's time for us to part ways. With the U.S. Prime Rate at 3.25%, any rate above 10% is a subprime rate, in my opinion, and I'm not a subprime borrower. I took advantage of an excellent 0% intro APR offer with this card, and, when the 12-month, interest-free period ended, I used the cash back rewards program to lower my cost of borrowing to a nominal level.

I really like the cash back rewards program with this card. I spend money on it and reward points accumulate. Then, when points reach a certain threshold, I simply login to my account and request a statement credit. With a few business days, the statement credit is posted to my account. Easy. No forms to fill out, No waiting until the end of the year to get my cash back reward and no waiting for a snail mail check. I will miss this rewards program.

I have to hand it to Chase for being honest. In the change of terms notice they sent, they explained the change as a, "response to market conditions," and they also added that the company wants to "maintain profitability." I'm hating the change but I respect the honesty. Contrast this with the Barclay's notice I received when that credit card bank closed my BJ's Visa Card. The company wrote that it was to, "...help [me] better manage [my] credit accounts..." In other words, not only did they close my account without consulting me first, they also felt it necessary to insult my intelligence.

In other business credit card news: Citi® closed my inactive CitiBusiness® card recently. I will miss this card because:

• it had a decent credit line (~$10,000) which enhanced my business's credit profile, and
  
  
• the account was aged which, again, contributes to my business's credit rating. It was my first business credit card.
  

So now I'm left with 3 business credit cards: two from Bank of America and one from Advanta. The Advanta card is about to be anointed as my "goto" card, because I'm still enjoying 0% intro APR on purchases, and the purchase APR will jump to a somewhat reasonable 7.99% when the interest-free period ends . I have been reading some horror stories about this particular Advanta business card (unwarranted rate hikes), but so far I've all is well. If Advanta tries to pull some funny business by raising my rate, I'll just pay the card off (my credit limit is under $3,000, and my balance isn't anywhere near that.)

As a final note: it's really no wonder that American Express is consistently rated as the best credit card bank. Right now the company is offering some high-risk cardholders a $300 payment (in the form of a prepaid gift card) in exchange for these accountholders paying their balance down to zero within a certain timeframe, and closing their account. Now that's my kinda' credit card bank!

NB: In that same JD Power & Associates Credit Card Satisfaction Study(1), Discover Card placed second.

Chase, on the other hand, has identified certain credit card accounts that may be at risk for default, and has responded by imposing a $10 per month fee. Yikes! I'm not a public relations professional, but I do have some sage advice for JP Morgan Chase CEO Jamie Dimon: stop doing that!

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Using Business Credit Cards To Make Ends Meet - A Growing Reality

It’s reasonable to argue that small business owners are feeling the effects of the global credit crunch most of all. Small businesses use credit for capital purchases, operations, and payroll, so when banks stop lending, small business owners find themselves in hot water. This year’s stock market crash has sent the global economy into a tailspin, and the Congressional bailout plan hasn’t stabilized financial markets the way the Fed and the Bush administration hoped it would. Instead of using the money to sustain or increase lending, banks are using the bailout funds mostly as a cushion for their own operations, which is killing many small businesses. Big businesses and big banks made poor choices; now small businesses are left holding the bag.

That’s why business credit card usage is steadily increasing.

Many business owners are now using business credit cards to make equipment and inventory purchases to make up for their dwindling credit lines. Banks are not loaning as much as they used to and not nearly as often, so many small business owners have had to use credit cards to make up the difference.



The problem with using business credit cards like traditional lines of credit is that they are not designed to for that kind of usage. Business credit cards are supposed to be used for expenses in daily operations and minor purchases. However, these tough economic times are forcing business owners to make major purchases on credit cards, putting both their personal and business finances at greater risk. Most business cards require the cardholder to provide a personal guarantee, and all charge interest when balances are not paid off every month. It’s most likely that daily expenses will be covered monthly; however, running a business on credit cards costs the business more because of the interest and fees associated with credit cards.

So, what is a struggling business owner to do?

If you absolutely have to use business credit cards in non-traditional ways, you should get the best cards available. There are small business credit card resources that provide access to deals that allow business users to transfer balances with no fees and make new purchases with an introductory 0% APR. The rewards packages on many of these cards may also help you cut costs by making certain services and modes of transportation cheaper or even free. Performing a balance transfer to a new business card once or twice a year is an easy way to avoid paying interest on an outstanding balance, so it's a good idea to pay attention to all those snail mail business credit card offers you likely receive on a regular basis. Bottom line: if you can take advantage of favorable credit card offers when they are available, then you should.

Sooner or later the economy will recover, but until it does, small business credit cards may be the best financial tools available that can keep small business owners afloat.

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No Preset Spending Limit with the Advanta Business World MasterCard®

We've added the Advanta Business World MasterCard® to our lineup of recommended business credit cards. This card does not come with an attractive 0% balance transfer offer, and it the purchase APR is currently 16.99% (indexed to Prime.) So why do we like this card?

Because for certain individuals this card could be a very nice fit. Those small business owners who pay their credit card bills in full each and every month -- thus avoiding any finance charges -- will almost certainly find the "no preset spending limit" aspect of this card attractive. This card is very unique: it's a credit card with no preset spending cap. Usually, only charge cards like the Gold Card from American Express card have no preset limit.

Here's a clip from the Advanta Business World MasterCard terms and conditions:

"....Because your account has no pre-set spending limit, we may permit you to incur charges that cause your balance to exceed your revolving credit limit. We may evaluate each such charge based on your account performance with us and your experience with other creditors. Any amount that we allow you to spend above your revolving credit limit will be due in your next statement, but we will not charge you an overlimit fee. All rates, fees and comparisons are valid as of April 1, 2008 but not necessarily thereafter. You should consult your tax advisor as to the proper tax treatment and deductibility of any business expenses, including the cost of credit..."

No need to worry about being charged an over-your-credit-limit fee, ever. But, if you do go over your credit limit, be prepared to pay whatever amount you go over when your next statement arrives. If you want to spend above your limit but Advanta decides not to permit the overage, the charge will be declined.

Interested? Click here to apply.

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Help Entrepreneurs In Developing Nations Thrive with The New Advanta Kiva Business Credit Card

Advanta has just introduced the new Kiva business credit card. What's so special about this new Kiva card? Well, if philanthropy is your thing, this card might be just the right fit for you. That's because, as a Kiva BusinessCard accountholder, anytime you make a grant to Kiva.org using the Kiva card, Advanta will match the grant -- dollar for dollar -- up to $200 per month. Your grant will help entrepreneurs in developing nations.

Microfinance is a beautiful thing. A small donation can make a huge difference to a struggling entrepreneur in a relatively poor country. The future of philanthropy is in microfinance, in my humble opinion. Handouts can help deserving recipients temporarily. A grant to an entrepreneur, on the other hand, will not only improve that business owner's life, but also his family and his community.

The annual percentage rate (APR) for purchases with the new Kiva card is a very competitive Prime + 2.74%, which adds up to 7.99% at the time of this posting (NB: the index never drops below 5.25% for this card, no matter where the Prime Rate is.)

You can transfer a credit card balance at 0% Intro APR and the interest-free period will last 15 months! That's pretty darn strong. If you don't payoff your transferred balance by the time 15 billing cycles are up, the "goto" APR will be 7.99%, which is also very competitive.

A couple things I should point out before you decide to take the plunge:

• From the terms and conditions:
  

  
  "...Balance transfers must be from another business credit account..."

  
  
• Again, from the terms and conditions:
  
  

  "...Finance charges on balance transfers and cash advances begin to accrue on the date we process the transaction..."

Visit www.kivab4b.org for more info about how the Kiva program works. You can also visit the blog at www.b4bcommunity.org for the latest Kiva-related news.

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