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

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