Small Business Facts
Small Business Facts
Office of Advocacy
advocacy Advocacy: the voice of small business in government
Credit Card Financing and Small Businesses
What types of capital are used by small businesses?
Small businesses use an array of financing options to fund their business ventures. Debt instruments include loans, trade credit, leases, lines of credit, credit cards, and bonds. Equity includes savings, shares, grants, founder's capital, and promissory notes. (Source: U.S. Small Business Administration, Office of Advocacy, Frequently Asked Questions about Small Business Finance.)
How much startup capital is obtained from credit cards?
A small percentage of entrepreneurs use credit cards to finance their businesses. About 10 percent of financing dollars come from personal and business credit cards. When credit conditions are tight, small firms are more likely to use credit card financing. (Source: U.S. Census Bureau, 2007 Survey of Business Owners.)
Who uses credit card financing, new or existing businesses?
Business owners in all business stages--those starting businesses and those seeking financing to grow their firms--turn to credit cards for their financing needs. Employers and nonemployers use credit cards for expansion purposes at similar rates, 14.5 percent and 11.8 percent, respectively. (Source: U.S. Census Bureau, 2007 Survey of Business Owners.) The construction industry most commonly uses credit cards, while businesses less than four years old are least likely to use them. (Source: National Federation of Independent Business Research Foundation, Small Business, Credit Access, and the Lingering Recession.)
Who supplies credit card financing to small firms?
Chart 1. Percent of Firms Using Expansion Financing
Venture capital Home equity
Business profits/assets Govt.-guaranteed/direct loan Other personal/family assets Personal/business credit card
Business loan from bank
0.3 0.1
6.9 3.9
17.6 7.9
1.6 0.5
4.7 4.1
14.5 11.8
18.2 5.3
Personal/family savings
None needed
Employers Non-Employers
26.3 31.6 39.5 49.3
Note: 2007 figures for firms in existence in 2007.
Source: U.S. Small Business Administration, Office of Advocacy from data provided by the U.S. Census Bureau, Survey of Business Owners.
Most credit card financing is from depository lending institutions with $50 billion or more in assets. These lenders hold
67.6 percent of the value of the commercial and industrial micro loan market (loans under $100,000, which are primarily
credit cards). (Source: Call Reports, June 2012.)
Chart 2. Credit card conditions
80
What is the current state of the credit card 70
market?
60
Bankers tightening standards for credit cards Stronger Demand for credit cards*
50
In the second quarter of 2012, demand for credit cards spiked 40
upward after remaining relatively flat, while the terms and
30
Percent
conditions for credit cards remained unchanged (Senior Loan 20
Officer Survey). Small business owners were more successful 10
in obtaining credit cards compared with other types of insti-
0
tutional credit. About three-fifths of small business owners
-10
obtained credit cards with satisfactory terms while 15 percent -20 were displeased with the terms and conditions they received. -30
(Source: NFIB Research Foundation.)
Negative values indicate that banks easing standards outnumber those tightening standards.
June 2012
Note: Data for demand became available in 2nd quarter, 2011. Net percentage from last 3 months. Source: Federal Reserve Board Senior Loan Officer Survey.
2007 q3 2007 q4 2008 q1 2008 q2 2008 q3 2008 q4 2009 q1 2009 q2 2009 q3 2009 q4 2010 q1 2010 q2 2010 q3 2010 q4 2011 q1 2011 q2 2011 q3 2011 q4 2012 q1 2012 q2
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