Plastic or...Plastic?
With few other choices, small-business owners are resorting to their cards for credit. And paying for it.
2009-11-05
PrintThe days when you could walk into a bank, 
show a pulse and get a loan...those days are over. The new reality: if you want the bank's money you’d better have some blue tights and a red cape. Or a credit card. As detailed recently at CNNMoney.com, banks are offering businesses plastic credit and not a lot else. Well, we take that back. Banks are indeed offering a lot, as in: a lot of interest payments to go with your card. JPMorgan Chase debuted its Ink cards (aimed at small business) in September. The cards come with interest rates up to 30 percent. Meanwhile, JPMorgan Chase has almost entirely eliminated its (less profitable) loans made through the SBA 7(a) program. Other banks are doing the same: 7(a) loans have dropped by over half since 2007. So with few options, small businesses are breaking out the plastic: a survey by the National Small Business Assoc. shows almost 60 percent of small-business owners have used a credit card for business capital in the past year. Is this a good thing? Chase Business Cards president Richard Quigley thinks so. He calls the Chase Ink cards a "significant opportunity." (He means for small business. But we know what he really means.)
Where processing fees really go. (Hint: not to processing.) If you’re a merchant, you pay a 2.1 percent processing fee every time a customer uses a credit card. This adds up to a lot of money for credit card issuers (the top four are Citigroup, Bank of America, JP Morgan Chase and Capital One, which together control 70 percent of all credit cards out there). In 2008 they collected $48 billion in processing fees from U.S. merchants. According to a report from Convenience Store News (which we should read more often, given the amount of time we spend in convenience stores) these processing fees now compose more than a quarter of all credit card revenue. In the end the fees are paid by consumers, passed along in the form of higher prices, and in 2008 they amounted to $427 per U.S. household. Where does the money go? Only 13 percent goes to processing. The rest goes to profit and to pay for rewards programs. Many other countries (including Australia, Germany, Israel, Mexico, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland and the United Kingdom) have used their antitrust laws to bring down "processing" fees. That’s why U.S. consumers pay seven times more in processing fees than the rest of the world. (We think the U.S. does have antitrust laws somewhere. They’re probably gathering dust next to that law that says convenience stores shouldn’t charge $11 for a six-pack of decent beer.)
Working hard(er) for the money. The Bureau of Labor Statistics has just released its third-quarter numbers and they show that productivity has soared. In other words: people are working fewer hours and producing more. The BLS threw us out because we were bringing down the curve. But this still isn’t great news for unemployment, because it means that, rather than hire new people, companies are wringing more from their current employees. Enjoy your weekend, while you still have one. (And your $11 six-pack.)
show a pulse and get a loan...those days are over. The new reality: if you want the bank's money you’d better have some blue tights and a red cape. Or a credit card. As detailed recently at CNNMoney.com, banks are offering businesses plastic credit and not a lot else. Well, we take that back. Banks are indeed offering a lot, as in: a lot of interest payments to go with your card. JPMorgan Chase debuted its Ink cards (aimed at small business) in September. The cards come with interest rates up to 30 percent. Meanwhile, JPMorgan Chase has almost entirely eliminated its (less profitable) loans made through the SBA 7(a) program. Other banks are doing the same: 7(a) loans have dropped by over half since 2007. So with few options, small businesses are breaking out the plastic: a survey by the National Small Business Assoc. shows almost 60 percent of small-business owners have used a credit card for business capital in the past year. Is this a good thing? Chase Business Cards president Richard Quigley thinks so. He calls the Chase Ink cards a "significant opportunity." (He means for small business. But we know what he really means.)Where processing fees really go. (Hint: not to processing.) If you’re a merchant, you pay a 2.1 percent processing fee every time a customer uses a credit card. This adds up to a lot of money for credit card issuers (the top four are Citigroup, Bank of America, JP Morgan Chase and Capital One, which together control 70 percent of all credit cards out there). In 2008 they collected $48 billion in processing fees from U.S. merchants. According to a report from Convenience Store News (which we should read more often, given the amount of time we spend in convenience stores) these processing fees now compose more than a quarter of all credit card revenue. In the end the fees are paid by consumers, passed along in the form of higher prices, and in 2008 they amounted to $427 per U.S. household. Where does the money go? Only 13 percent goes to processing. The rest goes to profit and to pay for rewards programs. Many other countries (including Australia, Germany, Israel, Mexico, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland and the United Kingdom) have used their antitrust laws to bring down "processing" fees. That’s why U.S. consumers pay seven times more in processing fees than the rest of the world. (We think the U.S. does have antitrust laws somewhere. They’re probably gathering dust next to that law that says convenience stores shouldn’t charge $11 for a six-pack of decent beer.)
Working hard(er) for the money. The Bureau of Labor Statistics has just released its third-quarter numbers and they show that productivity has soared. In other words: people are working fewer hours and producing more. The BLS threw us out because we were bringing down the curve. But this still isn’t great news for unemployment, because it means that, rather than hire new people, companies are wringing more from their current employees. Enjoy your weekend, while you still have one. (And your $11 six-pack.)
