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Rate hikes may cost US small businesses dearer: study
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PR Newswire | 12 May, 2010
REDWOOD CITY (California): A new study conducted by BillShrink (www.billshrink.com), a search engine that compares millions of product and service options against your unique needs, reveals that small business owners in the US could end up paying more than $420 million in incremental finance charges this year because their cards aren't getting the same protections as consumer cards.
Part of the problem is that cash-strapped businesses are charging more on their credit cards as business lending continues to decrease. According to the Federal Reserve, in the last quarter of 2009, business lending at smaller banks was down 13%. And while businesses wait on the Obama Administration's proposed repurposing of $30 billion in TARP money to spur business lending, many small business owners must rely on their credit cards for cash flow. That's not a new cash flow strategy, but it is now a more expensive one.
BillShrink surveyed more than 300 small businesses over the past three months to find out how the lack of protections over their business cards has affected them:
* Many business card issuers have raised rates upwards of 15% and some cardholders saw rates increase 27% in the last three months
* More than a quarter of all small businesses carry an average balance of $14,572
* Smaller businesses (those with under $600k in monthly revenue) are more than twice as likely to carry a balance versus paying it off in full each month.
"We did this research to shed light on the fact that small businesses are victim to the same egregious rate hikes consumers' experienced before the oversight laws went into effect earlier this year," said Peter Pham, CEO of BillShrink. "The lack of regulation, coupled with shrinking access to credit, is forcing many business owners to shift spending onto their personal cards, which can become a dangerous cycle negatively impacting their credit scores."
By contrast, the rates on consumer credit cards only increased an average of 1% in the last three months. A comparison of business credit card rates and consumer credit card rates reveals business cards are now seeing similar rate gouges imposed on consumer credit cards before the CARD Act passed on February 22, 2010. BillShrink's study in August 2009 showed that purchase rates of consumer cards increased dramatically to nearly 20% in the first half of 2009.
Some business card issuers are offering business owners protections they are mandated to give consumers. Capital One is the most business owner-friendly and has adopted quite a few CARD Act provisions. It is the only issuer to offer cardholders fair allocation of payments, allowing payments to go towards balances with the highest interest rate.
Acknowledging that businesses have different cash-flow and credit needs from individuals, BillShrink's credit card feature for business guides owners toward credit cards that offer the best terms and meet businesses' unique money management needs. Business owners visiting BillShrink answer a series of questions about cash flow, credit usage and reward preferences. The service then searches the marketplace for best available rates, offering complete pricing transparency, and displaying the card's true cost over time.
NOTES on finance fees: From January to March 2010, BillShrink surveyed 300 business owners seeking advice on credit cards. Of the estimated 7.3 million business owners who don't pay off their $14,572 balance each month (7.3 million = 27% of the 27 million small businesses in America) at an average interest rate across issuers (Capital One, Citi, Bank of America, American Express and Wells Fargo) amounts to an additional $420 million over 2010 as the result of the rise of rate differential. Rates reflect non-promotional rates.
BillShrink is a search engine that compares millions of product and service options against your unique needs. With all the fine print and endless choices, simple tasks like finding the right credit card or cell phone plan can turn into a huge hassle. BillShrink cuts through the clutter and delivers unbiased recommendations tailored to an individual's specific needs.
In an era when eight in ten Americans overpay for expenses, BillShrink empowers and inspires people to become savvy shoppers by simplifying complex pricing structures, for everything from credit cards and wireless plans to savings accounts and gas. BillShrink shows users the true cost of ownership and identifies an average of $1500 in savings on most common bills. The company has found more than $1 billion in potential savings for over a million users.
BillShrink is a decision-oriented site that helps people make smart decisions. Users answer a few simple questions about spending and saving behavior and in less than a minute, BillShrink presents the best options on the marketplace. In order to provide individualized recommendations, the company tracks more than 10 million cell phone plan combinations, 300 bank rates, 240 credit cards and 150,000 gas stations. BillShrink then keeps the savings coming by alerting users when a better deal comes along.
BillShrink was listed among the "Top 20 Best Money Websites" by Money Magazine and named one of the "Best Web Sites" by Kiplinger's. The company has been featured in the country's leading news sources including The Wall Street Journal, The New York Times, Consumer Reports, Fortune, The Dr. Oz Show, The Today Show, CNN, ABC and CBS. The company publishes the popular "Shrinkage is Good" blog, which features commentary on the latest economic news and savings tips.
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