Posts Tagged ‘Capital Access’

Credit Crunch for Small Business Cardholders

Saturday, May 16th, 2009
Complex and Interconnected

Complex and Interconnected

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.

Global Similarities, Part Two

Monday, May 11th, 2009
An Uphill Battle

An Uphill Battle

In an earlier blog posting, I wrote of the difficulties small businesses in the United Kingdom were experiencing with respect to access to credit, even in obtaining loans from banks that had received government assistance. It isn’t just the Anglo-Saxon countries where the flow of credit to small businesses is blocked. Zwanzig Minuten (a daily newspaper, the title means “Twenty Minutes”) reports that the Swiss government is establishing a loan fund to aid small and medium enterprises throughout the country with loans of up to CHF 40,000.  We tend to think of the large corporate enterprises as dominating employment in Switzerland, particularly the banks and pharmaceutical companies. In fact, in Switzerland, as in the United States, small businesses account for more than one-half of all employment. The Swiss economy is also in recession, with economic contraction of 2.2% projected for this year. Switzerland also had its version of a government bailout: UBS (Union Bank of Switzerland) accepted government assistance, Crédit Suisse did not. And, consistent with the trend we have seen, Swiss small businesses are also struggling with issues around access to credit. I lived as an ex-patriate in Zurich, Switzerland; this photograph is the famous Matterhorn, perhaps symbolic of the tough obstacles small businesses everywhere face.