What the 2010 Credit Reform Means for Small Business

Small businesses are a special entity. These businesses do not have the funds that big businesses have access to, but still require money to operate on a daily basis. Since small business owners tend to separate their personal finances from those of their business, many bridge the time gap between when they have to pay for business expenses and when they receive customer payments by using small business credit cards.

As part of his effort to combat the financial woes of the nation, President Obama enacted a credit card reform bill in an order to protect consumers from changes to the terms and conditions by the credit card issuers. The bill, which goes into effect in 2010, protects consumers from having their credit card accounts closed—even if their accounts are in good standing—or from interest rate hikes without ample notice. It requires credit card issuers to notify cardholders of interest rate changes 30-days prior, account closures 45-days prior and to send bills at least 21 days prior to the due date. As a credit cardholder, you may sigh in relief because some of the conditions stated in the bill will benefit you in the long.

If you’re the proud owner of a small business credit card, however, don’t sigh too fast. The bill does not extend to protecting small business credit cardholders.

So what does the credit card reform mean for small business credit cards?

Account closures
Credit card issuers of small business cards will continue to have the right to close a small business account without the same amount of notice as consumer cards. This is true even if you have been a model small business cardholder. So if you rely on your credit card to cover small business expenses, your access to this money can disappear in a matter of days. This greatly handicaps small businesses because the owners may no longer have the capital to keep their business doors open. This adds to the number of businesses already having to close because of the bad economy.

Interest rate hikes
Small business credit card exclusion from the reform means interest rates can be increased at any time and without enough notification for the business owner to make other arrangements. These rate hikes can mean the difference between being able to afford making the monthly payment and not being able to afford it. Again, if the line of credit for a small business is cut off because of unfavorable terms, then it may be the demise of the business.


Terms and conditions changes
While the reform protects consumer cards against terms and conditions changes that can adversely affect the cardholder, small business card issuers can continue to change conditions at will. This may mean that small business cardholders receive notice that the issuer is closing their account only a few days before the closure or before a rate increase is instituted. While the reform bill also prohibits card issuers from increasing rates during the first year, this does not apply to business cards.

With millions of small businesses across the nation contributing to the American economy, how is it going to resolve the economic turmoil if these businesses have to close because of unfavorable credit terms and conditions? In short, the new credit card reform does not protect small business credit cardholders. It leaves these cardholders vulnerable to the credit card issuers or forces them to use their personal credit cards to cover business expenses. In essence, it may change the way small businesses do business and have an effect on whether or not they can do business at all.