Small Business Owners Feeling Credit Crunch

New York, NY, April 6, 2009--A credit-card crunch is squelching the dreams of entrepreneurs, according to a story in the Wall Street Journal.

The newspaper reported that as banks tighten up on consumer credit cards, they are also cracking down on small-business owners by slashing their credit lines, closing accounts and raising interest rates.

A recent Federal Reserve survey found that about two-thirds of banks' loan officers reported that they tightened terms for business loans in recent months.

The National Small Business Association said that 69% of 250 surveyed small-business members faced worse terms on their cards, such as higher interest rates, in the second half of last year.

Banks have reason to get tough. In a bad economy, small businesses are usually among the first victims. Credit-card issuers have seen a surge in charge-offs, or debts no longer expected to be paid, over the past year as small businesses fail.

But the credit-card squeeze couldn't come at a worse moment for the estimated 27.2 million small-business owners who have long been one of the growth engines of the economy, the Journal said.

Many established small-business owners use credit cards to pay salaries or buy inventory.

"People are using their credit cards to keep the businesses going, so when that dries up, the businesses go," says Jeanne Marie Cella, an attorney in Media, Pa., who has seen a significant increase in small-business owners filing for bankruptcy.