Credit? Entrepreneurs Find It's in the Cards
Credit card companies are ramping up small-business offerings with hopes of signing on millions of new customers. Glitzy American Express events, Discover's first small-business card, and MasterCard's new line of industry-specific cards are just a few of the ways that these credit giants are wooing the little players. Some cards and features have real advantages to small companies, but it will take more than aggressive marketing to persuade many small-business owners to change their ways.
Walter Carr has been using the same bank-issued Visa for his company, Carr Properties, for about 20 years. The Hanahan, S.C., real-estate broker and self-storage operator still uses the card for only about 10 percent of his business purchases, mainly at places like gas stations and office supply stores. Like many small-business owners, he has set up accounts directly with vendors, which he pays with checks. "This works for me," says Carr, who has been in business for 35 years. "It's nice and simple."
Many owners share his point of view. Only 21 percent use business credit cards at all, according to a survey by Visa and the SCORE Association, a nonprofit small-business counselor. Small-business purchases hit $4.7 trillion in 2005, of which only $300 billion was spent using payment cards. "This was a crying need waiting to be filled by the right product," says Sastry Rachakonda, director of Discover Business Card.
Access to capital. Until now, many credit card companies have lumped small-business owners in with consumers. With that market conquered, the card companies began turning their sights to small-business owners to attract new customers, says Deborah Bianucci, president of BAI, a financial services industry organization. What they found was a market with a "wide degree of difference in needs," she says. Small-business owners don't use their cards as consumers do, but they also don't have access to capital as larger companies do. They may need credit, but many suppliers don't accept cards, forcing business owners to pay with checks.
MasterCard has had a small-business card for two decades, but last year it started to allow cardholders to use a signature-free payment system called PayPass, tracking receipts for small-business owners. In May, it started a card for construction companies, which have to pay vendors before getting paid themselves. The card gives them an extra month to pay bills. MasterCard plans to launch cards for other markets in the coming months.
Discover started its first small-business card in June, with credit limits of up to $50,000 and downloadable quarterly statements. Cardholders can also change the credit limit on employee cards online and pay vendors who don't accept cards with purchase checks. The card addresses the "gritty, day-to-day needs" of these business owners, says Rachakonda. Visa Business cards now link credit and debit accounts. Visa is also working with more suppliers such as utilities, landlords, and vendors to get them to accept cards.
Seeing the competition, American Express, which long has had a hold on the small-business market, upped the ante. Its card already had no preset spending limits, but it has boosted rewards programs and thrown networking events for its Open card members, such as an evening with Virgin Group CEO Richard Branson.
The competition helps small-business owners, says Peter Horan, CEO of Allbusiness.com, a consultancy. More-detailed and frequent statements show small-business owners where their money goes. And higher credit limits and lengthy payment schedules give them a flexibility similar to that of larger companies. "It's real hard to get small-business people excited about stuff," says Horan. But "it's starting to feel like they are getting some of the advantages and attention of big business."
This story appears in the October 2, 2006 print edition of U.S. News & World Report.