The nation's 20 million small businesses have grown into the world's third largest economy after the United States and Japan.

Acting on an "irresistible" opportunity to profit from the spectacular growth in the small business market, a handful of the nation's major credit card issuers are lowering the bar on credit extension and adding to their product roster services that cater to small businesses' financial needs, including lending, leasing, money management, tax and accounting services. "Our belief in this market's future growth is what led us to a fundamental decision to aggressively grow our small business sector," says Steven W. Alesio, president of American Express small business services.

American Express, arguably leading the pack though only active in targeting the small business sector for a year, will soon expand its credit services to include guaranteed Small Business Administration loans and auto leasing. Further, Advanta Corp., a veteran-albeit smaller-player in the market with three years of aggressive marketing to small businesses under its belt, is now into home equity lending and computer financing for the sector.

But in March, American Express forged ahead by rolling out its new Corporate Optima Platinum Card, which extends unprecedented credit lines up to $50,000 at an introductory interest rate of 8.9 percent. The rate jumps to prime plus six percent after six months. The company has two other cards with similar introductory rates, but lower credit line maximums. And since it entered the small business credit card market in January 1996, the number of cards Amex has issued has grown to 400,000.

Advanta, meanwhile, has also come out ahead, doubling distribution of its Advanta MasterCard BusinessCards in 1996 and is now one of the top three issuers of small business cards (the other two: American Express and Wells Fargo Bank). Advanta first rolled out its small business card in 1994 after a survey showed that cash flow management was a common frustration for small business owners. "It's the key reason why the card exists," says Advanta's Mike Noles, svp and general manager of business cards.

The Advanta card offers credit lines up to $20,000; cardholders receive detailed quarterly and annual itemized expense management reports so that they can track expenditures and itemize spending for tax purposes. And counter-culture to bank-issued cards, Advanta small business cards have the customer's company name prominently displayed at the top of the card, not Advanta's (though it is printed in small type at the bottom of the card). Further, customers can access their lines of credit through checks, though the interest rate is the same no matter how the credit is accessed. "We've priced our cards so that they are attractive to small businesses," says Noles. An interest rate of prime plus nine percent is typical, he says, but rates for preferred customers can go as low as prime plus three percent.

In pursuing small business customers, Amex's Alesio says, "The challenge is to find better ways to serve an under-served market. We need to help small businesses with cash flow, paper work, access to capital and credit." To this end, American Express quarterly management reports simplify record keeping, track and control costs, and assist in tax preparation. American Express has also entered into a joint venture with AT&T Capital, called American Express Capital Finance LLC, which provides up to $25,000 in equipment financing to small businesses through unsecured lines of credit. But American Express's growth in small business credit may be limited should rivals Visa and MasterCard win share in the market. While American Express is already working with more than a dozen banks in Europe and Latin America, future alliances with U.S. banks depend on the resolution of a Federal antitrust action against Visa U.S.A. and MasterCard International for barring member banks from issuing American Express and Discover cards.

Observers see small business credit cards as part of a much sought- after transition away from traditional paper-based transactions. "They are another product that small businesses can use to gain access to capital funding," says Ann Livingstone of the American Bankers Association. "It's important that small businesses get as much access to credit as possible. The cards are a good way for them to get their foot in the door. And the quarterly statements can help them control their spending."


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