Credit Card Financing and Working Capital Funding

As a result of an increasing commercial financing crisis,card issuers are already cutting back on their
commercial borrowers are evaluating new alternativesunsecured lending programs.
for business finance funding. Business cash advancesLike reductions in their lending programs for business
and credit card financing are two working capitallines of credit, most banks are now making similar
financing options which have proven to be effectivecutbacks in credit card lending. They are reducing or
and practical sources of operating cash for smallcancelling credit lines even when borrowers have a
business owners.superb payment record. The rationale for banks
The use of credit card financing often refers toreducing both credit card lines and commercial lines of
business cash advances in which working capital iscredit is similar. With unsecured commercial loans or
obtained by business owners based upon futurepersonal loans, banks fear that massive defaults are
credit card processing activity. Alternatively the usealmost inevitable due to a very shaky economy and
of personal credit cards to obtain a cash advance isbusiness lending climate. Unlike residential real estate
also referred to as a credit card loan. With businessfinancing in which real property is pledged as
finance funding shortages, small business owners arecollateral, banks know that they have no collateral to
increasingly using both approaches to obtain operatingfall back on with working capital loans and credit card
cash for their business. The two financing approachesloans because they are unsecured. Many small
are not equal in terms of how they are viewed bybusiness owners use home equity lines of credit to
commercial financing experts although the strategiesobtain operating cash, and these funding sources are
might be called by the same name occasionally.also diminishing in most areas of the United States.
Business lines of credit and other variations ofAlthough these lending programs are backed by
working capital loans have been recently cancelled orcollateral, the value of homes in many areas has
reduced by many commercial lenders. In response,decreased to the point that many outstanding loans
many business owners have been forced to rely onexceed the current property value.
cash obtained via their personal credit cards toOne of the most disturbing and frustrating
sustain their businesses. In order to prepare foroccurrences in the current difficult commercial
several of the most undesirable actions being takenfinancing environment is the lack of clear information
by many credit card loan lenders, we urge allfor many business owners about which funding
commercial borrowers to review the predatoryoptions are realistic and possible. Thousands of
lending discussion in The Working Capital Journal.borrowers might have obtained operating cash from
For business owners using or about to use personalpersonal credit cards when there were better options
credit cards to secure operating capital, we want tofor this one factor alone (confusion and
make two important comments: (1) We consider thismisinformation).
to be a last resort method of business financing andDue to the growing tendency of several major credit
whenever possible it should be avoided. Beforecard issuers to exhibit predatory lending practices,
assuming that this is the only source of capitalthe use of personal credit card loans should be
available, commercial borrowers should consult with aavoided. At a minimum, each business owner should
working capital finance expert. The possibility ofcontact a business finance funding expert to
business cash advances and working capital loansdetermine if a business cash advance program or a
should be thoroughly explored. (2) This questionableworking capital loan program can be used to obtain
method of obtaining commercial finance funding willneeded cash.
prove to be increasingly more difficult because credit