THAT SOUNDS LIKE A GOOD IDEA…

I was running an errand on Sunday while listening to a football pre-game show on the radio.  During the commercial break, I heard an ad for a major credit card issuer (I can’t remember which one at the moment) touting their cards as a godsend to small businesses who need a better way of tracking expenses and managing cash flow.

The cash flow argument in favor of small business cards isn’t new.  You hear it often and one reason for the frequent repetition is the fact that it’s a smart position.  Small businesses often need a temporary “bridge” to cover expenses while they wait for client/customer payments.  Credit cards are a sensible way to do that.  It’s a persuasive argument, which is why you see major credit card companies like Citi making it day in and day out.

LOOKING FOR MORE BUSINESS CUSTOMERS…

Radio ads aren’t the only way creditors are reaching out to small businesses.  Chase has a new business card and others will undoubtedly follow suit.  Meanwhile, the Wall Street Journal reports that card companies are sending out a record number of solicitations to businesses, looking for more customers.

In light of the credit freeze we were worrying about a few short months ago, that sounds like good news.  The card companies are trying to get more businesses to use plastic, which woulds seem to evidence a willing to increase their lending.  The direct mail company, Mintel, who is probably sending out quite a few of those “you’re approved” letters to small businesses explains:

“After scaling back significantly in 2008, card issuers are starting to look at small businesses again,” comments Andrew Davidson. “Small businesses have the ability to create jobs and drive economic growth, but after being starved of credit, they need all the help they can get. By focusing on small businesses, credit card issuers are contributing to recovery.”

Based on that, you’d think that small business owners would be grinning ear to ear about all of that newfound credit.

Not quite.

GIVING WITH ONE HAND, TAKING WITH THE OTHER…

While the card companies are on the hunt for fresh customers, they’re simultaneously beating up on their existing small business client base.  They’re cutting credit limits left and right for established cardholders, an action that can have devastating consequences for a small business who’s been following the creditors’ advice by using the card to manage cash flow.  Some of the cuts have been to business-only cards, others have been applied to personal accounts used for business.  Either way, it spells trouble.

A Ventura County Star report focusing on the issue notes:

The Los Angeles office of consumer advocacy organization Consumer Action has received hotline calls from small- business owners running into credit card problems with their own banks, said Nelson Santiago, community outreach manager with the L.A. office. The calls started with credit limits being reduced, then rate increases, and then the doubling of minimum payments.

Kathy Chu and Sandra Block hammered the point home in USA Today:

Credit line reductions are particularly problematic for small businesses, says Todd McCracken, president of the National Small Business Association. A 2009 NSBA survey shows that 59% of small businesses use cards to finance their business. This survey also shows that 41% of businesses had their card limits cut from April 2008 to April 2009.

HERE’S AN IDEA…

We all know that some of the limit-cutting and term-changing the banks have been doing are in a last-ditch effort to wring out some extra cash before the new Credit CARD Act goes into effect.  We also know that some of the credit limit cuts have been designed purely to decrease the apparent levels of bank risk exposure.  It makes the books look better, which encourages investors.  In other words, the credit card companies have some motivation to whack their existing customers.

At the same time, it would seem to make more sense for them to worry about the customers they have instead of putting those people and businesses at risk for following the cash flow management advice that has been a staple of the credit card industry’s marketing.

Why spend a fortune in direct mail and outreach to suck in new customers before taking a moment to consider the people with whom you’re already working and how to keep them around instead of running them off?

I’m not saying the card companies shouldn’t look for new business.  I just think it would be nice if they did a little more to take care of the business customers they already have.