Send Lynette a Confidential E-Mail
As a small business owner, you must manage your credit more cleverly during this recession. Unfortunately, financial institutions that provide your credit cards now spend millions to entice you to call and share your problems with them. But when you reveal your financial weaknesses, you provide legitimate reasons for them to reduce your credit limit, raise your interest rate, increase your payments, or close your account.
Cathy and Bob own a small organic farm. It’s a sole proprietorship, which means their business and personal credit interconnect more than they should when an enterprise is incorporated. Bob has been battling cancer. He’s on the winning side of recovery now. However, they had to plant fewer crops this year and last. Combine a 50 percent income reduction with increased expenses for medical care and they wanted to have their interest rate lowered on the primary credit card they use for business expenses. Cathy called Chase, where they’ve banked for many years. They’ve never paid late. Until the last couple of years, they paid their balance in full every month. Recently, they’ve been carrying a balance that’s about a third of their credit limit.
The Chase customer service rep seemed friendly and empathetic as Cathy honestly explained their situation. Then she politely lowered their credit limit by $5,000, increased their minimum monthly payment from 2 percent to 5 percent, and refused to reduce their interest rate because “their creditworthiness has changed.” Cathy was furious. By reducing their limit, their balance now exceeds 50 percent of their credit limit, which means their credit scores will drop immediately and will not begin to increase until Cathy and Bob are able to lower their balance to less than a third of the limit. Their only option is to close the account. However, they will not have the money to make higher payments until their income increases next year. Making partial payments for several months will result in late fees and destroy the credit ratings they’ve worked hard to keep through their recent challenges.
Joe owns a small luggage and travel supplies store. Its prime location in an easily accessible shopping center has made it a popular place to shop. When he bought the struggling store 20 years ago, he changed the inventory to attract a broad base of clientele seeking an eclectic assortment of travel items. During the last year his business income dropped 75 percent, which reflects difficulties in the local economy. He eliminated his personal salary, and started using personal credit cards to subsidize business spending. His personal credit scores have been in the high 700s for several years so he never anticipated a problem when he responded to Bank of America television ads, which communicate a desire to “help” customers by encouraging them to call if their financial situation has changed.
Since he maintained personal and commercial Visa and Mastercard accounts with Bank of America, Joe thought it would be nice if he could combine his two personal accounts into one. And he wanted the limit on the new account to be higher than his current combined limits. Worst case, he thought the bank might simply raise the credit limits on the two separate accounts rather than combine them. He called Bank of America to discuss his options. They asked for updated financial information. When he told the customer service rep the truth, he was asked to hold for several minutes. Joe was shocked when she returned to tell him that all of his accounts had been cancelled, ending a 25-year relationship with the bank, and sending his personal credit scores into a nosedive.
“Beware of wolves in sheep’s clothing,” says the popular metaphor adapted from the Sermon on the Mount. Are you a small business owner doing all you can to survive this economic crisis so you can thrive when the marketplace regains its vitality? You want to consider how forthcoming you will be about any financial changes if you discuss your credit card terms with your lender. Financial institutions, especially those confronting their own severe losses, tend to be far more focused on your short-term payment ability than your long-term business prospects. Consider your options carefully before you pour out your financially challenged guts.