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Charging your business
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November 19, 1998: 8:18 p.m. ET
More owners than ever are relying on credit cards to finance their businesses
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NEW YORK (CNNfn) - More than ever, America's small businesses are saying "charge it."
A new study released by Arthur Andersen and National Small Business United shows that a record 47 percent of small and mid-sized business owners are using credit cards to finance their businesses, twice as many as just two years ago.
And the trend is expected to continue, with 43 percent of respondents stating they intend to use credit cards to boost their businesses in the next 12 months.
"Relying on credit cards is a 'quick fix' for many small business owners -- demonstrating their ingenuity in finding ways to help their business move ahead," said Todd McCracken, president of NSBU.
Nearly one in five of the 504 business owners surveyed said they use two or three credit cards, with an additional 5 percent stating they use four or more.
The number of small and mid-sized business owners who pay off their balances each month has dropped by almost half to 38 percent. And those using credit cards only occasionally to make ends meet has also declined by more than half to 10 percent.
Companies with fewer than 20 employees were most likely to use credit cards to finance their businesses.
McCracken warned that high finance charges on credit cards may lead to a loss of capital that otherwise could be reinvested in a business.
"Small business owners need to reach a point of equilibrium where credit card usage is balanced with other financing methods," McCracken said.
Exploring other options
In addition to credit cards, small companies finance their businesses with commercial bank loans, leasing and asset-based financing. Those using commercial bank loans jumped to 45 percent from 38 percent, reversing a steady decline in the previous five years. Leasing more than doubled to 36 percent from the previous year and asset-based financing or inventory used as collateral more than tripled to 13 percent.
Other forms of financing remain relatively unchanged:
- Vendor credit (17 percent).
- Private loans (14 percent).
- Personal/home equity loans (12 percent).
- Selling/pledging accounts receivable (3 percent).
- SBA guaranteed loans (2 percent).
- Venture capital (1 percent).
Most small and mid-sized companies were satisfied with the financing available to them, stating it was adequate for their business needs. In addition, 84 percent said bank mergers have had no effect on the ability to secure financing.
"Obtaining adequate financing is the lifeblood of every small business," said McCracken. "Considering the concerns of small business owners about the economy, it's a comfort to see that so many of them feel confident about their capital options."
Those companies that did not use financing in the past 12 months dropped by half to 14 percent, a significant figure because the percentage of respondents who said they did not need financing essentially has not changed since 1993, with most respondents expecting that trend to continue for the next year. 
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