Credit-Card Reform: No Fix for Small Biz

Small business cardholders still face penalties that issuers are now barred from charging consumers

When Washington's new credit card rules took effect on Feb. 22, most cardholders got some relief from practices that consumer advocates have long condemned, like raising rates on old balances or applying payments in a way that maximizes interest charges.

Small business owners were the exception. As an amendment to consumer protection laws, the Credit Card Accountability, Responsibility, & Disclosure (CARD) Act did nothing to regulate the fast-growing market for small business credit cards. Unlike corporate charge cards that large companies use to manage expenses, business credit cards function much like consumer cards and are personally guaranteed by business owners, who often carry balances to finance their ventures. Small business cardholders now face a hodgepodge of policies and uncertain prospects for reform.

Business cards account for 15% of all volume charged on credit and debit cards, analysts estimate. The law did direct the Fed to recommend additional protections for these cardholders to Congress by May 22. A bill to cover business cards with CARD Act-style protections has stalled in the House. Small business advocates hope to attach the measure to a future Senate jobs bill—and to pass it before business owners take on credit card debt mistakenly thinking they're protected from retroactive rate hikes, says Molly Brogan, vice-president of public affairs at the National Small Business Assn., which has long pushed for credit card reform. "There's mass confusion," she says.

The banking lobby says giving small business cards the same protections as consumers will curtail credit. Because small businesses are risky and tend to charge more than consumers, issuers will have to cut credit and preemptively raise interest rates if they can't adjust rates later on, says Ken Clayton, senior vice-president of card policy for the American Bankers Assn. "You're merely going to exacerbate that pullback in credit that's already taking place in the marketplace," he says.

Some card issuers are voluntarily giving business customers bits of the same protections consumers now have. On Apr. 1, Bank of America (BAC) announced that it would cease raising interest rates on existing balances in May for its 2 million small business cardholders and add other protections in July. Capital One (COF) included small business accounts in many CARD Act-related changes in February.

Without the force of law, these changes could be reversed by card issuers. And small business cardholders still face penalties such as fees for going over credit limits that issuers are now barred from charging consumers. Kevin Reeth, CEO and co-founder of online bookkeeping startup Outright, has been charged for exceeding the $3,000 credit limit on his American Express (AXP) small business card twice since AmEx abolished such penalties for consumers on Oct. 1. On other occasions, his card was declined—making it difficult to tell when a charge will be approved if he's near the limit. AmEx spokeswoman Rosa Alfonso notes that business owners can avoid over-limit penalties by paying down their balance before their billing period ends.

While card issuers often argue that they need to be able to raise rates on existing balances to compensate for the risk of extending unsecured credit, BofA doesn't expect that abandoning its ability to adjust rates will limit the amount of credit it can extend, says spokeswoman Betty Riess. The bank aims to boost lending to small businesses in 2010, including credit card loans, by $5 billion. Say Riess: "We're trying to make every good loan we can."

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14 Tips for Small Companies to Thrive in a Down Economy

8. Don't pander — ponder! Showcasing your wisdom without taking time to probe causal factors can be insulting. Instead, honor the complexity of client issues. Be inquisitive about their goals, frustrations, hopes, and struggles. Then construct a matrix of options and augment this with the advantages and disadvantages of each.

9. Prepare to bend by predicting the trends. Be vigilant about monitoring relevant trends, since they're always in flux. Even more importantly, anticipate and maintain an awareness regarding forces that could affect the trends you're monitoring. Doing so enables you to foresee and adapt to emerging trends before your competitors do.

10. Don't defer getting referrals. If you're not comfortable asking your satisfied clients to provide referrals, do it anyway! Once you've delighted them, conduct a brief interview to learn what they valued most about working with you. Using this information, draft a brief testimonial for them to edit and print onto their letterhead.

11. Publicize or perish. Both credibility and sales increase from publishing articles or books, and speaking on your area of expertise. It's not that hard! Every time you solve a problem for a client, produce an outline of the process from start to finish. Then fill in the outline, and voila, you have an article or a speech. Multiple articles can comprise a book. Writing a book is less daunting if you write only one chapter at a time without thinking of it as a book.

12. Value for free, service for fee. Consider providing an educational session to prospective clients at no charge, but structure the delivery so that they want more. For example, deliver the information you promised to deliver, but make reference to additional, high value information your clients receive.

13. Don't attend conventions without clear intentions. Recoup the opportunity cost of attending conventions. Get an attendee list in advance of the meeting, identify and research your targets before you even leave town. Then make it your mission at the meeting to establish contact and engage them. Remember: Attendance is not an outcome. Make your attendance result in new business by preparing in advance.

14. Break it down to build it. Identify key result areas of your business, such as prospecting, delivery, marketing, speaking, new product development, etc. For each, write out measurable goals each quarter. Break these down into component parts, and include them in your calendaring tool.

No matter how many of these tips you implement, your own outlook and attitude can diminish their effectiveness. Those who prevail in difficult times are the ones who steadfastly refuse to allow negativity to form a barrier to their success. They instead deliberately and diligently take constructive action, thereby refreshing and reinvigorating their minds and their spirits, enabling them to take more action, which refreshes and reinvigorates.

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14 Tips for Small Companies to Thrive in a Down Economy

If your thoughts are primarily fear-based, if you’re envisioning the worst for yourself and your business, if your conversations are focused predominately on bad news, then you’re seriously impeding your own success. Instead of giving succor to all the negative blathering, buckle down and determine to take three actions every single day to improve revenue. Here are some suggestions.

1. Don’t you DARE pick up that phone unless it’s to generate business! Be ruthlessly disciplined about generating business as JOB ONE. Any activity that doesn’t secure new business should be delegated or done during non-business hours. Prioritize everything else around this fundamental principle. During business hours, dedicate yourself exclusively to building your business.

2. Virtually stalk your prospects. Describe your ideal client. What types of organizations do they belong to? Join them. What kinds of publications do they read? Read them. What types of events do they attend? Attend them. Differentiate yourself with detective work about your targeted prospects. Research them; tap your network prospects. Research them; tap your network to learn more. This information helps warm up cold contacts, and sets you apart from most others who won't go to this much effort.

3. Work backward to move forward. If you're tracking important ratios, you know how many qualified prospect meetings it takes to generate one client and the average sale per client. With only these two pieces of information, you can control how much you sell each month. Determine desired sales volume, then conduct two to three times the number of qualified prospect meetings required to achieve it.

4. Invite scrutiny. Whose business acumen do you admire? Who's already successful in your field? Whose clientele does your product or service complement? Invite these folks to be your advisory board. Meet quarterly to gain their advice on your business challenges. Advisory boards impose a level of scrutiny and accountability that both challenge and comfort. Ensure you get unbiased, unemotional, tough truths by not including friends and loved ones on the board.

5. Your pipeline is your lifeline. NEVER stop prospecting. In good times or bad, keep your pipeline full! Even when you’re flush with business, don't get cocky. Realize that if you wait to prospect until you need new clients, it will be too late to achieve immediate results.

6. You lag before you bag. The lag time between your first meeting with a qualified prospect and closing the sale is an essential ratio for managing your productivity. The sales you bag today likely began at least three months ago!

7. Play the numbers. Whether you enjoy it or not is irrelevant — networking is an imperative. Learn how to do it well. If you want to survive the lean times, you have to network regularly and focus on helping others. Understand that networking is a numbers game. Play to win!

To Be Continued

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