By U.S. Rep. Mike Michaud
(D-Maine)
Maine small businesses represent 97.4% of all employer firms in our state, employ approximately 60 percent of all our private sector workers and generate the vast majority of new jobs.
But with the tightening of business lending by financial institutions during this economic downturn, small businesses are struggling to obtain and maintain access to credit to cover the purchase of supplies, new inventory and other routine operating expenses. More and more, America’s small businesses are turning to credit cards to meet cash flow needs. In fact, a National Small Business Association (NSBA) survey found that 44 percent of small business owners have used credit cards to help finance their company in the previous twelve months. Credit cards are replacing traditional loans as the most widely used source of credit for small business owners.
Right now, especially during these difficult economic times, it’s essential for Congress to do everything possible to encourage the growth of America’s small businesses. One way to do that is to make sure they have protection from deceptive and abusive credit practices that can lead to a never-ending cycle of fees or hefty payments.
To address this issue, I recently joined with my colleagues to introduce HR 3457, the Small Business Credit Card Act. Earlier this year, Congress enacted the Credit Cardholder Bill of Rights for consumers into law, protecting them from unscrupulous practices by credit card companies. HR 3457 would simply extend those same protections to small businesses.
And protections are needed. The most recent Federal Reserve’s Senior Loan Officer Survey, released in April, found that 40% of domestic banks have tightened credit standards for business borrowers. For many small businesses, regular lending is a vital part of the cash flow process. Yet nationally, banks and other lenders have made only half as many business loans as last year. Established, creditworthy businesses are having trouble getting routine business loans and lines of credit, even from the Small Business Administration’s America’s Recovery Capital Loans Program, which is fully guaranteed by the U.S. government.
When their lines of credit are crunched, America’s small businesses have had to find other financial resources to stay in business. According to the NSBA, in 2008, credit cards became the most common source of financing for America’s small business owners. Research conducted by both the NSBA and National Federation of Independent Businesses (NFIB) found that businesses are experiencing the same kinds of abusive practices as consumers, such as double-cycle billing and retroactive or unannounced interest rate hikes and due date changes.
Our small businesses are the key to our country’s economic recovery. They are where most Americans go to work, and where most new jobs are created. They’re not asking for a hand out, just a fair shake. If Congress can pass a consumer credit card bill of rights, they should pass one for small businesses too.