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Commercial card issuers are wise to manage credit risk carefully under any economic conditions. But many issuers have overreacted to risks in recent months, reducing or cutting off credit to businesses that still are reasonable credit risks, Edmund Tribue, global practice leader for the risk management practice of MasterCard Advisors, tells CardLine sister publication Cards&Payments. "Their knee-jerk reaction is to pull back and protect themselves from losses, but it's going to be at the expense of future growth," Tribue says. Community banks lately are doing a better job managing small-business credit card risk because they have closer relationships with their customers, he says. But even large issuers can use common sense to determine whether a spike in spending and balances on a business card is a sign of trouble or is normal given the seasonal nature of a business owner's spending needs, Tribue says. For example, an issuer reasonably may be concerned about a sudden spike in the card balance of a small electronics store, but seasonal spikes in card use, even for large cash advances to meet payrolls, are normal for many small landscaping companies, Tribue says. Issuers should call business cardholders to discuss changes in card use instead of assuming the worst and automatically lowering limits or canceling accounts, he recommends. Tribue agrees with many critics who complain U.S. banks have not increased consumer and business lending after having received part of the $700 trillion assistance under the federal Troubled Assets Relief Program. Unfreezing credit will be good for issuers and businesses in the long run, according to Tribue. "There's a valuable service these small businesses provide to the overall economy," he says. "Issuers should realize it's a symbiotic relationship."
