At the end of last year, Advanta Corp. was the 11th largest U.S. credit card issuer with approximately $5 billion in outstanding balances and the only major credit card company focused on the small business segment. More than one million of those small business customers are searching for new sources of credit as Advanta will stop lending against credit card accounts on June 10, 2009. The stated reason for this action was that uncollectible debt reached 20% of the total outstanding, according to public filings of the company. Advanta has set aside $1.4 billion to buy back securitized credit card loans at 65 – 75 cents on the dollar. Advanta finds itself caught in a squeeze: it has been unable to sell its receivables for cash in the asset-backed securitization market since June 2008 and rising unemployment rates suggest further deterioration in their credit card receivables. William Dunkelberg, chief economist of the National Federation of Independent Businesses, questioned how many business owners depend solely on their Advanta credit card and noted that credit is harder to find than ever before.
As I had advised in Prepare for the Worst, Plan for the Best: Disaster Preparedness and Recovery for Small Businesses (Wiley, second edition, 2008), mitigate your risk of third party failure by diversifying your suppliers. Never rely on a single provider, unless it is absolutely unavoidable, which was certainly not the case with U.S. credit card issuers.