House Committee Examines Small Business Credit Card Use

The House Committee on Small Business, chaired by Rep. Nydia Velázquez (D-NY), recently held a hearing on the increasing role of credit cards in the financing of small businesses. As the U.S. marketplace continues to weather a credit crunch, small businesses have found affordable financing exceedingly scarce, and have thus reached to credit cards to get the financing they need.

"When a small firm can't buy equipment, or has to lay off its workers, our entire economy suffers," said Velázquez. "These businesses are the principal drivers of our economic growth, but without capital they can't lead us back to recovery."

According to a Federal Reserve survey of senior loan officers, 65% of respondents reported tightening standards in the first quarter of 2008, a problem compounded by an increase in fees related to popular small business loans, including the Small Business Administration's (SBA) 7(a) initiative. "With fewer options in the private market, and in the midst of an economic downturn, it is inexcusable for SBA to make it tougher for small firms to get capital," said Velázquez. "Affordable financing means access to opportunity. That's why many are turning to plastic—to keep their businesses and our economy going."

Witnesses testified that in the past five years alone, it is estimated that small firms' use of credit cards has jumped by 14% and that 70% of small businesses pay off their full balances monthly, giving them the equivalent of 30-day interest-free loans.

"Small firms are facing a considerable financing gap," said Velázquez. "Viewing credit cards as the tools they've become for small firms just makes sense."

Jacob Barron, NACM staff writer