CHESSNOID

This was a great article in the NY Times about small business financing and how credit card companies like American Express, Visa, and Mastercard have cut small business owners at the knees. Just like consumers, credit limits are not being evaluated by payment history, credit profiles, or credit scores. The credit card companies are just reducing the entire portfolio of credit lines of small businesses.
The impact has caused many small businesses to lay off employees, cut back on inventory purchases, and change everything to a cash only basis. Some of the comments I received on my American Express post from over a year ago have many successful business owners that were the recipients of the credit card limits cuts or credit card cancellations even though they have FICO scores, never paid late, and some who didn’t even use the card.

NY Times:

A crackdown on credit limits by card companies is squeezing the nation’s 27 million small businesses, exacerbating the problems brought on by a stagnant economy.

Owning a small business has always been a challenge — half wind up failing within the first few years. But the financial crisis has dealt them a one-two punch, as big banks cut the credit card lines that many entrepreneurs were forced to lean on when a once-abundant supply of loans dried up.

As of April, 59 percent of America’s small firms relied on credit cards to help finance their day-to-day operations, up from 44 percent at the end of last year, according to the National Small Business Association.
…
But credit card terms have worsened sharply with the recession: three-quarters of small business said they have seen a large cut in limits over the last six months. That would not be so bad if other forms of credit were easily accessible. But banks and credit card companies, which opened their coffers when the economy was flourishing, are now pulling back from nearly everything that hints of risk.

“I’m a business in a bad time that wants to expand,” said Mr. Licata, who added that he had been unable to get loans at Cleveland’s banks since the recession set in. Recently, the limit on three of the credit cards he uses for his law firm was slashed by a total of $60,000, he said, dousing plans to enlarge his business.
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Now, small businesses “are really having to scramble because often they don’t have the kind of flexibility they had before,” said Todd McCracken, president of the National Small Business Association. Further, credit scores of small businesses have been hurt as banks cut credit limits, making it even harder to get other types of credit.

“It feeds on itself,” he said.

Mr. Allen, the owner of the financial and insurance marketing firm in Ohio, said he recently took some insurance agents on an Alaska cruise where he tried to charge drinks and several side trips on his credit card, only to be denied. To his astonishment, his limit had been cut with no notice.

After he returned to Ohio, Mr. Allen said he met some clients for dinner. Normally, he said he would have whipped out a credit card to pay the bill. Instead, he paid in cash. Mr. Allen said he has also scaled back travel because credit was tight and business was slower than normal.

The strange thing about this whole credit card matter is the Federal government has given out taxpayer money out to help these companies to get credit flowing again. The government is claiming the credit crunch is easing, but the reality is credit is frozen for the majority of small business owners and consumers out there.

The recession is in its 20th month. That is official and no expert can deny that like they did over a year ago which includes financial gurus Bernanke and Paulson. They both claimed there was no recession. The economy was getting bad under the Bush administration, and getting even worse under the Obama administration. The credit market and the economy in general will not get better until the housing market crisis is resolved.