Firms look to credit cards as banks tighten up credit access

As small businesses find access to lines of credit from banks drying up, firms are reportedly looking to alternate means of borrowing in order to sustain their organization.

In an article on CreditCards.com, it was stated that the tough financial climate is resulting in banks either increasing rates of interest on business loans or withdrawing such products altogether. As such, a rising number of small firms are now said to be looking to use credit cards.

One of these is Mitch Frankenberg, co-founder of Vermont-based Paw House, who said, "Right now, banks are scared and have tightened up. We use credit cards because they have more favorable terms than our credit line."

As evidence for why credit cards are increasingly being sought, the publication pointed to a 2008 study from the National Small Business Administration revealing that over 50 percent of small businesses owners claim to have difficulty in getting a loan.

Ed Hess, a professor of business at the University of Virginia, said, "Make absolutely certain you are paying your bills on time. Don't let anything fall through the cracks."

He added that businesses should attempt to take steps to protect their credit rating by keeping up with repayments, or if they are having difficulties in doing so notify their lender for the reasons for doing this.

As banks tighten up access to lending, businesses looking to get funding quickly might want to seek assistance from a nontraditional lender.

Writing for American Medical News last month, Karen Caffarin stated that the financial crisis means that those small businesses that have previously relied on credit in the past are now unlikely to find borrowing available to them as easily.