Credit cards drive growth in small business lending

Credit cards drive growth in small business lending

The nation's largest card issuers are also the largest providers of small business loans, according to a 2008 report by the Small Business Administration.

According to the report, business credit cards caused a sharp spike in the frequency and value of small business loans. The beginning of 2008 saw a slower year-to-year growth in small business lending than previous years, a sign of the slumping economy. During the same period, the total value of small business loans also increased 4 percent to reach $711 billion. A significant portion of the lending occurred via credit cards, as well as through traditional business loans, the SBA said.

While the report did not mention the size of the companies included, it did track loans under $100,000, which typically go to small businesses through credit-card lending and commercial loans, according to report co-author Charles Ou in an interview with BusinessWeek.  Loans of that size swelled from 21.6 million in 2007 to 25 million in 2008. Ou said the growth in small business lending results from an increased use in business credit cards.  

"Availability of business credit cards is one of the major contributions by the lending institutions to make credit more available," Ou said in the interview.  Typically, credit card loans for small businesses were provided by large lending companies, with those with more than $10 billion in assets accounting for 61 percent of loans under $100,000. Meanwhile, the report said the same institutions were "passive or less active in the market" for loans over $100,000 and under $1 million, which typically go to large or mid-size companies.

However, since the data was assembled in June 2008, lenders have been cutting credit for small businesses.  JPMorgan Chase was one of several lenders who suspended credit from many of its clients in 2009 in the wake of missed payments. The Credit Cardholders Bill of Rights, passed into law in May, does not provide protection for small business cardholders.

Published: June 5,2023