NEW YORK – Having tightened consumer lending standards, credit card issuers are pulling back in a more dramatic fashion from the small-business sector, where the risks and rewards are amplified. The result could be increased interest by small business owners in credit cards from their credit unions.
Small-business cards, which generally yield higher spending than consumer cards, greatly augmented issuers' profits in recent years. But in the current downturn, charge-offs of small-business receivables have risen more rapidly than losses on consumer debt. Issuers have lowered credit limits, raised interest rates, closed accounts, and reduced rewards for consumers and small businesses alike. But small-business issuers have gone further.
Citigroup Inc., for example, has discontinued a premium small-business card, the CitiBusiness PremierPass, "due to low demand in the current market climate," spokesman Samuel Wang said. The company started notifying cardholders about its decision last month, and is closing the accounts of those whom it deems unqualified to migrate to a similar product, the CitiBusiness Card with ThankYou Network.
American Express Co. has notified customers that two noncard small-business financing products will be discontinued on Jan. 15 "as a result of our increasing focus on our core set of card products," spokeswoman Rosa Alfonso said. AMEX also is selectively applying the same interest rate increases of 2 to 3 percentage points to its small-business card portfolio that it is applying to its consumer card portfolio.
Advanta Corp., which specializes in small-business cards, has been raising some of its cardholders' interest rates – in some cases by 20 percentage points or more – after last month saying that it was taking steps to reduce its exposure to "risky" customers. Advanta also said last month that it would close 200,000 inactive accounts in the second half, in addition to the 10,000 it would normally close, rather than try to get those cardholders to resume spending on the cards.
Small-business cards are particularly risky because they are approved according to an applicant's personal credit history but extend greater credit limits than the applicant would be able to access as an individual.
"The line of credit is likely to be higher … with not much more than personal creditworthiness to hang on," said Gwenn Bezard, a research director at Aite Group LLC.
Issuers are not abandoning the small-business niche. Citi has about nine remaining small-business cards, including one that was introduced in June. Ms. Alfonso said AMEX remains "committed to the small-business segment." And Advanta has rolled out two new premium cards since March.
