BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Report to the Congress on the Use of Credit Cards 

by Small Businesses and the Credit Card Market 

for Small Businesses

May 2010
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Report to the Congress on the Use of Credit Cards 

by Small Businesses and the Credit Card Market 

for Small Businesses

Submitted to the Congress pursuant to section 506 of 

the Credit Card Accountability Responsibility and Disclosure Act of 2009 

May 2010
Contents 

Executive Summary .......................................................................................................................1

The Use of Credit Cards by Small Businesses ............................................................................ 1

Small Business Credit Cards ....................................................................................................... 2

Small Business Access to Credit Cards in 2009 .......................................................................... 3

Disclosures and Protections for Small Business Cards ............................................................... 3

Introduction ....................................................................................................................................5

Background Regarding the Truth in Lending Act and Existing Protections for Credit 

Card Accounts ................................................................................................................................7

The Small Business Credit Card Market...................................................................................11

Small Business Credit Card Programs ......................................................................................15

Organization and Characteristics of Small Business Credit Card Programs ............................. 16

Marketing Small Business Credit Cards .................................................................................... 16

Features of Small Business Credit Cards .................................................................................. 18

Underwriting Small Business Credit Cards ............................................................................... 18

Interest Rates and Fees Associated with Small Business Credit Cards ..................................... 20

Management of Small Business Credit Card Accounts ............................................................. 23

The Costs and Profitability of Small Business Credit Card Programs ...................................... 24 

Credit Card Use among Small Businesses.............................................................27 

Trends in Small Business Credit Card Use and Credit Card Borrowing, 1998–2009............... 28

Characteristics of Small Businesses That Use Credit Cards ..................................................... 29

Credit Scores ........................................................................................................................................ 30 

 Characteristics Associated with Card Use.....................................................................30 

Intensity of Credit Card Use and Borrowing: Low versus High Credit Score Firms...............32 

Intensity of Card Use.............................................................................................37 

Intensity of Borrowing on Cards ......................................................................................................... 38

Credit Card Access, Terms, and Conditions .............................................................................39

Credit Card Access: Applications for New Cards .................................................................... 39

Interest Rates on Credit Cards in 2003 ...................................................................................... 41

Terms and Conditions during 2009 ........................................................................................... 42
Adequacy of Disclosures of Terms, Fees, and Other Expenses and Protections against 

Unfair or Deceptive Acts orPractices....................................................................45

Current Practices Regarding Disclosures of Terms, Fees, and Other Expenses ....................... 45

Current Practices Regarding Substantive Protections ............................................................... 46

Adequacy of Existing Disclosures and Substantive Protections—Complaint Information ...... 47

Conclusion and Recommendations ............................................................................................51

Comparison of Consumer and Small Business Cards ............................................................... 51

Potential Effects of Applying TILA’s Disclosure Requirements to Small Business Cards ...... 52

Potential Effects of Applying TILA’s Substantive Provisions to Small Business Cards .......... 53

Appendix .......................................................................................................................................55
1 

Executive Summary 

The Board of Governors of the Federal Reserve System (the Board) submits this report in 

accordance with section 506 of the Credit Card Accountability Responsibility and Disclosure Act 

of 2009 (Credit CARD Act, or Act), Pub. L. No. 111-24, 123 Stat. 1734 (2009). Section 506(a) 

of the Credit CARD Act requires the Board to conduct a review of the use of credit cards by 

businesses with no more than 50 employees and of the credit card market for small businesses. 

Section 506(a) provides specific considerations for the Board’s review. 

In performing its review and preparing this report, the Board gathered data and other 

information from a number of sources. Board staff met with and gathered information from 

major issuers of small business credit cards, trade associations representing small business 

owners, and two consumer credit reporting agencies. Board staff also worked with a small 

business trade association to help develop some credit card–related questions for inclusion in 

their survey of small business owners, added special questions to a quarterly Board survey of 

banks’ senior loan officers, and obtained from a vendor data regarding credit card direct mail 

offers to small businesses. Board staff reviewed the results of consumer testing that the Board 

conducted from 2006 to 2008 pertaining to disclosures given in connection with consumer credit 

card accounts, and considered customer complaint information maintained within the Board’s 

own databases and provided by small business credit card issuers. Finally, Board staff reviewed 

existing surveys, studies, reports, and research related to small business use of credit cards. 

This report summarizes the Board’s review of the use of credit cards by small businesses 

and the market for small business credit cards that was conducted in accordance with the 

requirements of section 506 of the Credit CARD Act. 

THE USE OF CREDIT CARDS BY SMALL BUSINESSES

The vast majority of small businesses use personal or small business credit cards. Most 

small businesses that use cards pay their balance in full each month, but some carry a balance, or 

borrow, on their credit cards. Small business credit cards differ from personal cards in that they 

are issued to firms, rather than individual consumers, and are intended to be used for business 

purposes only. Small business credit cards are also distinct from other types of card products 

designed for businesses, such as corporate cards, procurement cards, and fleet cards. 

As of the end of 2009, 83 percent of small businesses used credit cards; 64 percent used 

small business cards, and 41 percent used personal cards. Despite the widespread use of credit 

cards, only a minority of small businesses—18 percent—reported borrowing on credit cards. 

About 12 percent of small businesses borrowed on small business cards, and about 12 percent 
2 Board of Governors of the Federal Reserve System

borrowed on personal cards. 1 In the aggregate, credit card debt represents a very small 

percentage of total debt held by small business owners to finance their business operations. In 

2003, when 24 percent of small businesses reported borrowing on credit cards, credit card debt 

accounted for just 1.4 percent of all debt held by small businesses and the majority of credit 

card–borrowing firms reported borrowing less than $5,000 in total on all their credit cards.2 

Available evidence indicates that relatively high-risk firms, as measured by their business 

credit score from Dun & Bradstreet, are less likely than relatively low-risk firms to use small 

business credit cards. Nonetheless, higher-risk firms borrow more frequently on small business 

credit cards than lower-risk firms. Higher-risk firms also have a greater propensity to use and to 

borrow on personal credit cards compared with lower-risk firms. But again, total credit card debt 

accounted for less than 2 percent of higher-risk firms’ total debt in 2003. 

SMALL BUSINESS CREDIT CARDS

The small business credit card represents a fairly recent credit card product innovation, 

and the market for it has grown considerably since the mid- to late 1990s. Small business cards 

cater to business needs and require specialized management and underwriting techniques to help 

manage the particular risks that small businesses present. Issuers provide several services 

specifically for small businesses, such as employee cards with customizable spending limits and 

detailed spending statements each month or quarter. Also, small business cards often have 

higher credit limits than personal cards to facilitate the higher spending needs of small 

businesses. 

At the same time, small business credit cards are similar to personal credit cards in many 

ways. The two types of credit cards offer many similar features, such as rewards programs, 

balance transfer programs, and introductory rate promotions. The fees and pricing structures, as 

well as other terms such as grace periods, also appear to be similar across the two products. 

Indeed, several card issuers told Board staff that they house their small business credit card 

function within the same business unit as their consumer credit card function because of the 

similarities between the two products. 

Issuers use a variety of methods to market small business credit cards. One method, 

which is also commonly used for consumer cards, is targeted mail offers. In the case of small 

business cards, the issuers use small business mailing lists obtained from third parties such as 

Dun & Bradstreet and various trade organizations to identify potential customers. Evidence 

suggests that, as of the end of 2007, most small businesses were receiving unsolicited credit card 

offers in the mail on a monthly basis from issuers. Other marketing strategies employed by some 

 

1

 The percentage of businesses using cards is less than the sum of the percentages using each type of card because 

some small businesses use both personal and business cards. Likewise, the percentage of businesses borrowing on 

cards is less than the sum of the percentages borrowing on each type of card because some small businesses borrow 

on both personal and business cards. 

2

 More-recent information on the fraction of debt held on credit cards is not available. 
Report to the Congress on the Use of Credit Cards by Small Businesses 3

 

issuers include Internet-based advertising, marketing to existing banking customers through bank 

branches, and attending trade conferences. 

Small business credit cards are intended to be issued only to small business owners, not 

to consumers. Small business credit card contracts typically state that the card is to be used only 

for business purposes, and applicants must sign a statement attesting to the fact that they are 

applying for the card on behalf of their business. 

At the same time, small business credit cards typically stipulate a personal guarantee, 

such that both the firm and the guarantor (either the business owner or an authorized officer) are 

responsible for balances accrued. Therefore, in the context of issuing small business credit 

cards, issuers examine the personal credit history of the guarantor in addition to the firm’s 

characteristics (firm age, size, industry, and so on) and credit history, if such a history is 

available. When the firm has little or no credit history, issuers depend more heavily on the 

guarantor’s personal credit history. 

Issuers practice risk-based pricing on their small business cards, setting interest rates for 

card balances that vary with the firm’s and the guarantor’s riskiness. Similarly, issuers 

determine credit card line sizes based at least in part on an analysis of risk. The small businesses 

deemed most creditworthy may be offered relatively large lines and low interest rates. Little 

information exists on the actual rates small business cardholders currently face, but available 

evidence indicates that the range of potential annual percentage rates on small business cards is 

similar to that of consumer credit cards. 

In Board staff’s discussions with issuers, many stated that issuing and servicing costs are 

higher for small business cards than for consumer cards. In addition, several issuers indicated 

that, historically, small business card loss rates have been roughly 20 to 30 percent greater than 

for consumer cards. 

SMALL BUSINESS ACCESS TO CREDIT CARDS IN 2009 

During 2009, about 20 percent of small businesses attempted to obtain a new credit card. 

Among those small businesses applying for cards in 2009, four out of five reported that their 

most recent request was for a business card. Nearly three-fourths of all applicants were 

successful in getting a card. In contrast, the success rates for small businesses applying for lines 

of credit or bank loans in 2009 were about one-third and one-half, respectively. 

DISCLOSURES AND PROTECTIONS FOR SMALL BUSINESS CARDS

As a general matter, the substantive protections and disclosure requirements for credit 

cards under the Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq., do not apply to business 

credit card accounts. The Congress has excluded business credit cards from coverage under 
4 Board of Governors of the Federal Reserve System

TILA, with the exception of the 1974 amendments providing business cards with certain 

protections against unsolicited issuance and unauthorized or fraudulent use. 

TILA’s disclosure requirements for credit cards generally do not apply to business credit 

card accounts. Nevertheless, based on its review, the Board understands that many card issuers 

provide small business cardholders with key disclosures similar to the disclosures that are 

required by TILA for consumer credit card accounts. However, some issuers have stated that 

they do not intend to modify their small business credit card disclosures for conformity with the 

new disclosure rules in Regulation Z, which become effective for consumer credit card accounts 

on July 1, 2010. 

The Board believes that standardizing and improving disclosures for small business credit 

cards would benefit small businesses by enhancing their ability to compare the cost of the credit 

card plans available to them. There would be costs associated with requiring all small business 

card issuers to provide TILA disclosures, although those costs may be limited because small 

business card issuers may already provide some of these disclosures. However, to the extent that 

TILA’s disclosure provisions also contain related substantive requirements, application of those 

provisions could adversely affect the cost and availability of small business credit cards. 

Overall, it is not clear whether the benefits of applying TILA’s disclosure requirements to small 

business cards outweigh the costs. 

Although some small business credit card issuers have elected to voluntarily comply with 

certain of the substantive restrictions contained in TILA (as amended by the Credit CARD Act), 

the Board understands that other issuers of small business cards do not intend to do so. Applying 

many of TILA’s substantive credit card protections to small business credit cards would protect 

small businesses from practices that the Congress and the Board have found to be harmful in the 

context of consumer credit cards (such as restrictions on applying increased rates to existing 

balances). If, however, the Congress were to consider the application of these provisions to 

small business cards, it would be important to recognize the potential for adverse effects on the 

cost and availability of small business credit cards. For example, because credit card issuers 

have more difficulty assessing the creditworthiness of small businesses than of consumers, 

restricting issuers’ ability to adjust interest rates may lead to higher initial interest rates, which 

would harm those firms that borrow on small business credit cards. In addition, if credit card 

issuers were to reduce credit limits in response to such restrictions, even those businesses that 

use credit cards for transactions and cash management would be harmed. Thus, it is not apparent 

that the potential benefits of applying substantive restrictions similar to those in TILA to small 

business cards outweigh the potential risk of increased cost and reduced credit card availability 

for small businesses. 
5 

Introduction 

 The Board of Governors of the Federal Reserve System (the Board) submits this report in 

accordance with section 506 of the Credit Card Accountability Responsibility and Disclosure Act 

of 2009 (Credit CARD Act, or the Act), Pub. L. No. 111-24, 123 Stat. 1734 (2009). Section 

506(a) of the Credit CARD Act requires the Board to conduct a review of the use of credit cards 

by businesses with no more than 50 employees and the credit card market for small businesses. 

Section 506(a) provides the following specific considerations for the Board’s review: 

 (a) Required Review. – Not later than 9 months after the date of enactment of this 

Act, the Board shall conduct a review of the use of credit cards by businesses with not 

more than 50 employees (in this section referred to as “small businesses”) and the 

credit card market for small businesses, including— 

(1) the terms of credit card agreements for small businesses and the practices of 

credit card issuers relating to small businesses; 

(2) the adequacy of disclosures of terms, fees, and other expenses of credit card 

plans for small businesses; 

(3) the adequacy of protections against unfair or deceptive acts or practices 

relating to credit card plans for small businesses; 

(4) the cost and availability of credit for small businesses, particularly with 

respect to non-prime borrowers; 

(5) the use of risk-based pricing for small businesses; 

(6) credit card product innovation relating to small businesses; and 

(7) the extent to which small business owners use personal credit cards to fund 

their business operations. 

 Section 506(b) of the Act also directs the Board to provide a report to the Congress that 

summarizes the review and other evidence gathered by the Board. Section 506(b) requires the 

Board to include in its report any recommendations that it determines to be appropriate for 

administrative or legislative initiatives to provide protections for credit card plans for small 

businesses. 

 In performing its review and preparing this report, the Board gathered data and other 

information regarding small business credit cards from a number of sources.3

 Board staff met 

 

3

 For purposes of this report, “small business credit cards” refers to credit card plans which issuers offer to small 

businesses, as defined by issuers. 
6 Board of Governors of the Federal Reserve System

with and gathered information from major issuers of small business credit cards, trade 

associations representing small business owners, and consumer credit reporting agencies. Board 

staff also assisted a small business trade association with the development of a questionnaire for 

a survey of small business owners that included information relevant to this report, added special 

questions to a quarterly Board survey of banks’ senior loan officers, and obtained from a vendor 

data regarding credit card direct mail offers to small businesses. Board staff reviewed the results 

of consumer testing that the Board conducted from 2006 to 2008 pertaining to disclosures given 

in connection with consumer credit card accounts. Board staff also considered customer 

complaint information maintained within the Board’s own databases and provided by small 

business credit card issuers. Finally, Board staff reviewed existing surveys, studies, reports, and 

research related to small business use of credit cards. 

 The Congress specified that, for purposes of this review, the term “small businesses” 

should be interpreted to mean businesses with not more than 50 employees. The various 

information sources used by the Board in conducting its review do not employ a single, 

consistent definition of the term “small businesses.” Indeed, there is no generally accepted 

definition available. Definitions may be based on the number of employees (with the maximum 

to qualify as a small business ranging from as low as 10 to as high as 500) or annual revenue 

(with the maximum ranging from $1 million to $50 million). Wherever possible, Board staff has 

focused its analysis on employer firms with 50 or fewer employees; however, in some cases (for 

example, reporting findings from interviews with card issuers), the definition employed by the 

source was used. 4 

 This report summarizes the Board’s review of the use of credit cards by small businesses 

and the credit card market for small businesses that was conducted in accordance with the 

requirements of section 506 of the Credit CARD Act. The first part of the report, “Background 

Regarding the Truth in Lending Act and Existing Protections for Credit Card Accounts,” 

discusses the extent to which existing protections in the Truth in Lending Act are applicable or 

otherwise relevant to small business credit cards. The second part, “The Small Business Credit 

Card Market,” describes the credit card market with a focus on small business credit cards. The 

third part, “Small Business Credit Card Programs,” focuses on card features and issuer practices 

such as marketing and the use of risk based pricing. The fourth part, “Credit Card Use among 

Small Businesses,” includes a discussion of the extent to which small businesses use personal 

credit cards to fund their business operations. The fifth part, “Credit Card Access, Terms, and 

Conditions,” assesses the cost and availability of credit cards for small businesses. The sixth 

part, “Adequacy of Disclosures of Terms, Fees, and Other Expenses and Protections against 

Unfair or Deceptive Acts or Practices,” assesses the adequacy of disclosures of terms, fees, and 

other expenses, as well as the adequacy of protections against unfair and deceptive acts or 

practices relating to small business credit card plans. Finally, the report ends with “Conclusion 

and Recommendations.” 

 

 

4

 Note that the definition of small businesses as firms with 50 or fewer employees does not include businesses that 

have no employees. 
7 

Background Regarding the Truth in Lending Act and 

Existing Protections for Credit Card Accounts 

 In 1968, the Congress adopted the Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq.

The original purpose of TILA is to promote the informed use of consumer credit by requiring 

disclosures about its terms and costs. Generally, TILA covers only credit extended to 

consumers.5

 Section 103(h) of TILA provides that the term “consumer,” used with reference to a 

credit transaction, characterizes the transaction as one in which the party to whom the credit is 

extended is a natural person, and that the money, property, or services that are the subject of the 

transaction are “primarily for personal, family, or household purposes.”6

 Generally, TILA does 

not apply to business or commercial credit. Indeed, in section 104(1), TILA specifically exempts 

credit transactions involving “extensions of credit primarily for a business, commercial or 

agricultural purpose.”7

 Therefore, unless otherwise expressly provided, credit cards issued to 

small businesses are generally not covered by TILA. 

 The declaration of purpose set forth in section 102(a) of TILA indicates that the Congress 

intended TILA in 1968 to require uniform and meaningful disclosures about credit in order to 

protect consumers: “It is the purpose of this title to assure a meaningful disclosure of credit 

terms so that the consumer will be able to compare more readily the various credit terms 

available to him and avoid the uninformed use of credit.”8

Congressional records indicate that the Congress considered whether to include business 

and commercial credit within the scope of TILA, but instead focused on consumer credit. The 

legislative history suggests that the Congress believed disclosure requirements were needed for 

consumers, but that businesses were better able to evaluate the credit plans available to them: 

By limiting the bill to the field of consumer credit, the committee believes it is 

 providing disclosure requirements in the area where it is most essential. Most businesses 

 and corporations are in a good position to judge the relative worth of alternative credit 

 plans and by and large do not require the special disclosure protections provided by the 

 bill.9 

As a result, early versions of the bill that became TILA were revised to clarify that the law 

should apply to consumer credit only, and not to all forms of credit or all users of credit. In 

formulating TILA’s exemption of business credit under section 104(1), the Senate clarified 

 

5

 15 U.S.C. 1601(a); see also 12 C.F.R. 226.1(c)(1). The Board’s regulations implementing TILA are set forth in 

Regulation Z, 12 C.F.R. part 226. 

6

 15 U.S.C. 1602(h). See also 12 C.F.R. 226.2(a)(12) for a definition of consumer credit (“credit offered or extended 

to a consumer primarily for personal, family, or household purposes”); and 12 C.F.R.226.2(b)(2) (“Where the word 

credit is used in the regulation, it means consumer credit unless the context clearly indicates otherwise”). 7

 15 U.S.C. 1603(1); see also 12 C.F.R. 226.3(a). 8

 15 U.S.C. 1601(a). 

9

 113 Cong. Rec. 18401 (1967). 
8 Board of Governors of the Federal Reserve System

TILA’s “purpose test” and defined credit as “primarily for personal, family, household, or 

agricultural purposes.”10

 Since TILA’s initial enactment in 1968, the Congress has amended the statute to include 

additional disclosure requirements as well as substantive restrictions on credit card activity in 

order “to protect the consumer against inaccurate and unfair credit billing and credit card 

practices.”11 In certain cases, the Congress expanded TILA’s coverage by applying specific 

provisions to both business and consumer credit card accounts. However, the Congress has not 

amended TILA to apply to business credit cards as a general matter. 

On October 28, 1974, the Congress amended TILA to add section 135 to clarify that 

certain provisions of TILA are excluded from the business credit exemption in section 104(1).12 

Section 135 of TILA provides: 

Section 135—Business Credit Cards 

The exemption provided by section 104(1) does not apply to the provisions of 

sections 132, 133, and 134, except that a card issuer and a business or other 

organization which provides credit cards issued by the same card issuer to ten or 

more of its employees may by contract agree as to liability of the business or 

other organization with respect to unauthorized use of such credit cards without 

regard to the provisions of section 133, but in no case may such business or other 

organization or card issuer impose liability upon any employee with respect to 

unauthorized use of such a credit card except in accordance with and subject to 

the limitations of section 133. 

As a result of the addition of section 135, the protections provided by sections 132 (issuance of 

credit cards), section 133 (liability of holder of credit card), and section 134 (fraudulent use of 

credit card) apply to all credit cards, including business cards.13 These provisions generally 

prohibit the sending of unsolicited credit cards and limit a cardholder’s liability for unauthorized 

use.

14 Notably, section 135 provides an exception for businesses with credit cards issued to ten 

or more employees. Section 135 permits a card issuer and a business that provide credit cards to 

ten or more employees to agree by contract to the liability of the business with respect to 

unauthorized use of such credit cards. 

 

10 113 Cong. Rec. 18406 (1967). In 1980, the Congress subsequently amended section 104(1) of TILA to exclude 

credit for agricultural purposes from TILA. 

11 15 U.S.C. 1601(a). 

12 Pub. L. No. 93-495, 88 Stat. 1517-21 (1974). See also U. S. Congress, Senate (1973), Report of the Committee on 

Banking, Housing and Urban Affairs, June 28 (“This section [Section 210—Business use of credit cards] clarifies 

the authority of the Board to apply the provisions of Sections 132, 133 and 134 to credit cards used for business 

purposes.”). 

13 TILA was amended on October 26, 1970, to include sections 132, 133, and 134. These provisions applied to all 

credit cards. 

14 Section 134 imposes criminal penalties for fraudulent use of a credit card. 
Report to the Congress on the Use of Credit Cards by Small Businesses 9

 

On May 22, 2009, the Credit CARD Act was signed into law (Pub. L. No. 111-24, 123 

Stat. 1734 (2009)). The Act amended TILA and created a number of new substantive and 

disclosure requirements to establish fair and transparent practices pertaining to open-end 

consumer credit plans. The Act addresses, among other things: advance notice of interest rate 

increases and significant changes in terms (new TILA section 127(i)), the amount of time that 

consumers have to make payments (revised TILA section 163), interest rate increases (revised 

TILA section 171), over-the-limit transactions (new TILA section 127(k)), student cards (new 

TILA sections 127(c)(8), 127(p), and 140(f)), the reasonableness and proportionality of penalty 

fees and charges (new TILA section 149), and the reevaluation by creditors of rate increases 

(new TILA section 148). It is notable that the provisions of the Act that establish new 

substantive protections and disclosure requirements for credit card accounts apply to “credit card 

account[s] under an open end consumer credit plan,” and accordingly do not apply to business 

credit cards. However, as discussed previously, section 506 of the Credit CARD Act requires the 

Board to review of the use of credit cards by small businesses and the credit card market for 

small businesses and to provide this report to the Congress no later than12 months after 

enactment. 

 
10 Board of Governors of the Federal Reserve System

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11 

The Small Business Credit Card Market 

Many small businesses use credit cards as a convenient method to pay for goods and 

services and to track expenses. Some small businesses also use credit cards for borrowing 

purposes (in other words, carry a balance from month to month). This report focuses on the use 

of both personal and business credit cards by small businesses as well as on the market for small 

business credit cards. 

Small business credit cards differ from consumer cards in that they are issued to firms, 

rather than individual consumers, and are intended to be used for business purposes only. Small 

business credit cards are also distinct from other types of card products designed for businesses, 

such as corporate cards, procurement cards and fleet cards. Corporate credit cards are issued to 

large companies for use by employees when traveling or entertaining clients. Procurement cards 

facilitate large-dollar purchases managed by corporate procurement departments. Fleet cards 

cater to trucking and transportation companies; employees use these cards for fuel and autorelated charges.15

The small business credit card market has grown considerably since the late 1990s. 

According to Nilson Reports (2003 through 2008), a payments industry newsletter, spending on 

small business Visa and MasterCard credit cards more than tripled between 2002 and 2007, to 

about $150 billion in 2007, and held steady at that level in 2008. Despite this rapid growth, the 

small business credit card market is still quite small in terms of annual spending compared with 

the consumer credit card market. Indeed, spending on Visa and MasterCard consumer credit 

cards exceeded $2 trillion in 2008. 

Data collected under the Community Reinvestment Act (CRA) provides information on 

the extension of credit via small business credit cards. The solid line in figure 1 illustrates the 

growth from 1997 to 2007 in the number of loans and lines of credit (the data are indexed so that 

1997 equals 100) extended to small businesses by institutions identified as credit card specialists 

(for example, American Express, Advanta, Discover, and so on). Each year, the CRA requires 

that federally insured depository institutions report on the number and dollar volume of small 

loans and credit lines (“small” is defined as under $1 million) to businesses. Lenders also report 

on the number of small loans and lines to small businesses (businesses with annual revenue of 

less than $1 million).16 Under the assumption that the loans and lines of credit originated to 

small businesses by credit card specialists largely represent small business credit cards, the black 

 

15 In addition, a professional card, another type of credit card, is often issued to consumers rather than business 

owners. And as an alternative to credit cards, small businesses may use business debit cards to help access funds on 

deposit either through point-of-sale charges or cash withdrawals via an automated teller machine. For a more 

extensive review of the various types of commercial payment cards, see Susan Herbst-Murphy, “Getting Down to 

Business: Commercial Cards in Business to Business Payments,” Federal Reserve Bank of Philadelphia, 

forthcoming. 

16 Lending institutions must report on the volume of small loans and lines to small businesses only to the extent that 

they collect information on business revenues from borrowers. For more on the CRA data, see Federal Financial 

Institutions Examinations Council, “Community Reinvestment Act,” webpage, www.ffiec.gov/cra/default.htm. 
12 Board of Governors of the Federal Reserve System

line in figure 1 hints at robust growth in small business credit card issuance from 1997 to 2007, 

followed by a sharp drop off in 2008. 17

 

 

17 Board staff identified credit card specialists each year as those institutions where at least 99 percent of the 

institution’s loans/lines were for amounts under $100,000, and where the average loan/line size was less than 

$15,000. It is important to note that lenders can report an increase in the credit limit of an existing credit card 

account as a new loan origination. Thus, the growth shown in figure 1 includes both new credit card accounts and 

credit line increases. 

100

300

500

700

900

1100

1300

1500

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Index (1997=100)

1.   Growth in lending to small businesses, 1997‐2008

Loans to small businesses by credit card specialists Loans to small businesses

Note: Credit card specialists identified each year as those institutions with at least 99 percent of  reported loans

under $100,000 and the average loan amount at under $15,000.

Source:  Board staff tabulations from Community Reinvestment Act data.
Report to the Congress on the Use of Credit Cards by Small Businesses 13

 

For comparison, the dashed line in figure 1 displays the number of loans and lines of 

credit (again, the data are indexed so that 1997 equals 100) extended to small businesses by all 

reporting institutions.18 These data indicate that between 1997 and 2007, the number of loans 

and lines to small businesses by all reporting lenders grew far less dramatically than that by 

lenders identified as credit card specialists. 

Finally, data from the Board’s 1998 and 2003 Surveys of Small Business Finances 

(SSBF) and the 2009 Credit Access Poll conducted by the National Federation of Independent 

Business (2009 NFIB survey) indicate that the use of business credit cards by small businesses 

has been rising steadily.19 An estimated 37 percent of small firms (those with 1 to 50 employees) 

used business credit cards either for borrowing or transacting in 1998, and this proportion grew 

considerably to 52 percent by 2003, and 64 percent by 2009. That said, according to the 2003 

survey, for employer firms with 50 or fewer employees, less than 5 percent of total small 

business expenditures occurred on business cards. Other findings from these business surveys 

will be discussed in more detail in later sections of this report. 

 

 

18 Prior to 2005, independent institutions with assets over $250 million were required to report data under the CRA. 

In 2005, this asset size threshold increased to approximately $1 billion. Consequently, a large fraction of institutions 

(about 800 of 1906) that reported data in 2004 did not report data in 2005 while continuing to operate under the 

same organizational structure in 2005 (note that some smaller institutions voluntarily report data). However, these 

800 institutions only accounted for about 7 percent of the number of loans to small businesses reported in the 2004 

CRA data. Therefore, the change in reporting requirements in 2004 most likely does not substantially bias 

downward the trend after 2004 shown by the dashed line in figure 1. More importantly, the change in reporting 

requirements is virtually irrelevant with respect to lending by credit card specialists (solid line). 

The Call and Thrift Financial Reports, an alternative source of data on commercial lending, does not suffer from 

such reporting changes. However, one major disadvantage of these data is that they do not distinguish between 

loans made to smaller versus larger businesses and therefore may reflect corporate cards to a much greater extent 

than the CRA data used to create figure 1. 

19 Data from the 2009 NFIB survey were graciously provided to the Board by the National Federation of 

Independent Business (NFIB). The 2009 NFIB survey data are generally representative of U.S. small employer 

firms with 250 or fewer employees. Results from that survey are described in William J. Dennis, Jr. (2010), Small 

Business Credit in a Deep Recession (Washington: NFIB, February). The 2003 SSBF data are generally 

representative of all U.S. small firms with fewer than 500 employees and are described in more detail in Traci L. 

Mach and John D. Wolken (2006), “Financial Services Used by Small Businesses: Evidence from the 2003 Survey 

of Small Business Finances,” Federal Reserve Bulletin, vol. 92 (October), pp. 167–95. 
14 Board of Governors of the Federal Reserve System

(This page is intentionally blank.) 

 
15 

Small Business Credit Card Programs 

Board staff held discussions with representatives of several of the largest issuers of small 

business credit cards to help gain a deeper understanding of this market from the suppliers’ 

perspective. Each issuer was asked detailed questions within the following broad areas: 

 organization and basic characteristics of small business credit card program 

 marketing of small business credit cards 

 product features of small business credit cards 

 underwriting, pricing and costs of small business credit card programs 

The following discussion is based on (1) information obtained from card issuers through 

conversations, e-mail communications, and review of their public websites; (2) data obtained 

from Mintel Comperemedia (Mintel) on credit card direct mail offers to small businesses; and 

(3) special questions regarding small business credit cards that Board staff included in the 

Board’s April 2010 Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS). 

Mintel collects direct mail credit card offers from a “panel” of about 1,000 small 

businesses each month (in other words, the same businesses remain in the sample from month to 

month indefinitely).20 Mintel asks the businesses participating in the survey to submit all credit 

card mail received, and Mintel then records a variety of information from these mail pieces, 

including details on the terms and conditions of credit card offers. The Board also has access to 

Mintel’s data on consumer credit card mail offers from a similar survey of households. This 

report draws on these data, as well, where appropriate. 

It is important to note that Mintel’s small-business sample is not necessarily 

representative of the population of small businesses in the United States.21 Nonetheless, these 

data give a sense of the terms and conditions offered in a large sample of small business card 

offers in recent years. By virtue of being a panel, these data may be particularly informative 

about changes over time in terms and conditions, as well as changes in business credit card 

marketing volume. The data that the Board acquired from Mintel cover the period from 2005 to 

2009. 

The SLOOS is a quarterly survey, conducted by the Board, of a senior loan officer at 

each of approximately 60 domestic banks.22 The purpose of the survey is to provide qualitative 

and limited quantitative information on credit availability and demand, as well as evolving 

developments and lending practices in the U.S. loan markets. Each survey typically includes a 

 

20 Businesses may exit the sample at any point because of, for example, business failure. As businesses exit, Mintel 

replenishes the sample with new businesses. 

21 Information provided by Mintel regarding the general characteristics of the businesses in the survey (number of 

employees, the industry, and revenues) indicates that the survey covers a reasonable variety of small businesses. 22 The SLOOS also includes selected branches and agencies of foreign banks operating in the United States. These 

institutions were not asked the special questions regarding small business credit cards. For more information about 

the survey, see Board of Governors of the Federal Reserve System, “Senior Loan Officer Opinion Survey on Bank 

Lending Practices,” webpage, www.federalreserve.gov/boarddocs/SnLoanSurvey. 
16 Board of Governors of the Federal Reserve System

small number of questions covering special topics of timely interest. The April 2010 survey 

included special questions on small business credit cards to help provide information for this 

report to the Congress.23 More specifically, questions were asked regarding banks’ current 

standards for approving small business credit card applications relative to historical norms and 

recent changes in terms for new and existing small business card accounts. 

ORGANIZATION AND CHARACTERISTICS OF SMALL BUSINESS CREDIT CARD 

PROGRAMS

Small business cards are a relatively new product. Among the issuers that Board staff 

interviewed, the first companies to offer credit cards specifically targeted at small businesses 

began doing so only a little over 20 years ago. Some of the issuers that the staff spoke with did 

not enter this business until the mid- to late 1990s. 

Issuers generally indicated fairly close ties between the issuance of small business credit 

cards and consumer credit cards. Some companies issue small business credit cards through 

their consumer credit card unit, while others have a separate business card unit that works closely 

with the consumer card unit. Although the small business card is distinct in many ways from the 

consumer card, economies of scale and scope may nevertheless be gained by linking the two 

businesses. For example, because small business cards generally involve a personal guarantee 

by the business owner, an issuer’s experience in the consumer lending business may be helpful in 

assessing the value of that personal guarantee. That said, one issuer noted that its small business 

card division uses separate, specialized resources to market and underwrite these cards, and to 

manage credit risk and debt collections. Issuers reported uniformly that other types of business 

cards, such as procurement and corporate cards, are an entirely separate product from small 

business cards and often are issued through a different business unit. 

All of the issuers that Board staff interviewed indicated that their consumer card 

portfolios are much larger than their small business card portfolios, in terms of both the number 

of accounts and total dollars outstanding. Indeed, for some of these issuers, consumer card 

portfolios are 15 to 20 times greater in size than small business card portfolios, despite the fact 

that they are among the largest issuers of small business credit cards. However, credit lines and 

spending per card tend to be considerably larger among small business cards for all of these 

issuers. 

MARKETING SMALL BUSINESS CREDIT CARDS

Each issuer that Board staff spoke with had a unique definition of the term “small 

business.” Definitions were based on annual revenue and the number of employees. The 

maximum revenue to be considered a small business ranged from $5 million to $20 million, and 

the employee limit ranged from 10 to 100. 

 

23 Note that in the SLOOS, small businesses are defined as those with less than $50 million in revenues. 
Report to the Congress on the Use of Credit Cards by Small Businesses 17

 

Issuers use a variety of methods to market their products to small businesses. One 

method cited by several issuers is targeted mail offers, using small business mailing lists 

obtained from third parties such as Dun & Bradstreet and various trade organizations. Data from 

Mintel suggest that at the end of 2007, more than 70 percent of small businesses were receiving 

unsolicited mail on a monthly basis from credit card issuers advertising their business credit card 

products and inviting recipients to apply. After 2007, this number fell sharply to about 

35 percent by the second quarter of 2009 (figure 2). The latter observation is consistent with 

issuers’ reports that they had curtailed their mail marketing campaigns during 2009 in response 

to economic conditions. 

Another marketing strategy employed by some issuers is Internet-based advertising. 

Some issuers rely heavily on the Internet, while others expressed an aversion toward Internetbased marketing and account acquisition, saying that such accounts often performed relatively 

poorly. Some issuers prefer to take advantage of their “footprint” (brick-and-mortar branch 

network) and customer relationships to market small business cards. These issuers require 

potential customers to apply for a small business card either in person at a branch or online after 

logging into an existing account. One issuer also mentioned marketing its products at trade 

conferences. 

All of the issuers indicated to Board staff that they have no reliable way to identify which 

of their consumer cardholders may be using their consumer cards for business purchases. 

Therefore, they do not rely on internal consumer card use data to identify small business owners 

for marketing purposes. The issuers also indicated that small business credit cards are designed 

to meet business needs and are intended to be issued only to small business owners, not to 

20

30

40

50

60

70

80

Jan‐06 Jul‐06 Jan‐07 Jul‐07 Jan‐08 Jul‐08 Jan‐09 Jul‐09

Percent

2.  Share of small business panelists who received a small business credit card mail offer, 6‐month

moving  average, 2006‐09                  

Source: Mintel Comperemedia.
18 Board of Governors of the Federal Reserve System

consumers. To that end, small business credit card contracts typically state that the card is to be 

used only for business purposes, and applicants must sign a statement attesting to the fact that 

they are applying for the card on behalf of their business.24

FEATURES OF SMALL BUSINESS CREDIT CARDS

Similar to consumer credit cards, many small business credit cards have rewards 

programs and issuers appear to promote these programs heavily. According to Mintel data, from 

2005 to 2009, about 85 percent of credit card mail offers to small businesses were for cards with 

some type of rewards program. 

Discussions with issuers and information on their websites indicate that many small 

business cards offer cash back or are “co-branded,” offering extra rewards points with particular 

airlines, hotels or car rental companies. Some small business cards may also provide travel 

benefits, such as access to airport clubs. Credit card companies may also offer cards for 

exclusive use at one major business-supply store, such as Staples or Home Depot. Finally, 

general purpose cards without rewards are also available. 

When asked about recent product innovations, issuers mainly mentioned new rewards 

programs. Of course, small business cards in general are a relatively new product and might be 

considered an innovation in and of themselves. Issuers reported that small business cards cater 

to business needs, and require innovative management and underwriting techniques to help 

manage the particular risks that small businesses present. For example, issuers provide 

employee cards with customizable spending limits and detailed spending statements each month 

or quarter. These additional cards and spending statements are generally provided free of charge. 

To facilitate the higher spending needs of small businesses, issuers reported that small 

business cards also tend to have higher credit limits than consumer cards. While each issuer 

indicated that spending on small business cards is higher, on average, than on consumer cards, 

the magnitude of the difference varied considerably among issuers. Some issuers indicated that 

average spending on small business accounts relative to consumer accounts is 20 to 30 percent 

higher, while some other issuers said that it is 100 to 200 percent higher. 

UNDERWRITING SMALL BUSINESS CREDIT CARDS

Small business credit card applications typically require applicants to disclose detailed 

information about the business, such as industry, annual revenue, age of the business, number of 

employees, and tax identification number. The answers to these questions help to both verify 

that the applicant owns a business and gauge the creditworthiness of the business. 

 

24 Board staff reviewed the card contracts of several issuers online and found that each stated that the card was to be 

used for business purposes only. 
Report to the Congress on the Use of Credit Cards by Small Businesses 19

 

Card issuers may use business credit bureaus such as Dun & Bradstreet to help verify the 

identity of the business and check its credit record. In the absence of such a record, card issuers 

may check other business listings on the Internet or the yellow pages, or draw on knowledge 

about the owner gained through an existing consumer relationship. 

Issuers assess creditworthiness via automated processes as well as manual or judgmental 

processes, which may require additional information from the business such as a detailed balance 

sheet or net income statement. Some issuers indicated that they rely more heavily on judgmental 

review when they do not have an existing relationship with the business or its owner. 

Judgmental review can also be important when a business requests a relatively large credit line. 

Small business credit cards carry a personal guarantee, so both the firm and the guarantor 

(either the business owner or an authorized officer) are liable for payments due. Issuers therefore 

examine the personal credit history of the guarantor in addition to the firm’s characteristics and 

credit history. When the firm has little or no credit history, issuers depend more heavily on the 

guarantor’s personal credit history. As such, consumer account experience with the guarantor 

can provide valuable information about the guarantor’s creditworthiness.25

Almost one-third of the mail offers to small businesses for small business credit cards 

from the middle of 2005 to the end of 2009 involved “prescreening,” implying that the small 

business owner was preapproved or prequalified for the credit card based on information from 

the owner’s consumer credit file.26 Figure 3 shows that as the recession took hold in 2008, 

prescreening became much more prevalent. Figures 2 and 3 together suggest that from 2008 to 

the beginning of 2009, credit card issuers reduced their marketing efforts considerably and relied 

more heavily on prescreening in their marketing campaigns. But by the end of 2009, business 

credit card marketing was increasing and prescreening less frequent. 

 

25 Issuers do not consider the credit history of authorized users on the account, only that of the principal guarantor. 26 Mintel data on consumer card marketing campaigns indicates that, in general, more than 70 percent of consumer 

card offers are prescreened. 
20 Board of Governors of the Federal Reserve System

Still, other evidence suggests that the standards for approving small business credit card 

applications are currently tighter than historical norms. As noted previously, Board staff added 

special questions regarding small business credit cards to the April 2010 SLOOS. Two-thirds of 

respondents said that current approval standards are tighter than their “long-run” average, 

defined as the standards typically applied between 1998 and 2007. Among large banks, 15 of 

20 respondents (75 percent) said that current approval standards are tighter than their “long-run” 

average.27 Moreover, banks reported, on net, continuing to tighten standards for approval of new 

credit card accounts during the six months prior to the survey. For example, 14 of 34 banks 

responding to the special business credit card questions indicated that they had raised the 

minimum required credit score needed to obtain a business credit card over that period, while 

none said that they had lowered the minimum required score. 

INTEREST RATES AND FEES ASSOCIATED WITH SMALL BUSINESS CREDIT CARDS

Data from Mintel indicate that the average minimum annual percentage rate (APR) 

applied to new purchases (as opposed to transferred balances or cash advances) in both business 

and consumer direct mail credit card offers has risen substantially since late 2007 relative to the 

 

27 Large banks are defined as those with total domestic assets of $20 billion or more as of December 31, 2009. A 

total of 31 large banks were in the April SLOOS. The 11 that did not answer the questions about business credit 

cards likely do not offer them. Twenty-five smaller banks, with total combined assets of about $300 billion, were 

surveyed and 14 answered the business credit card questions. 

0

10

20

30

40

50

60

Jan‐06 Jul‐06 Jan‐07 Jul‐07 Jan‐08 Jul‐08 Jan‐09 Jul‐09

Percent

3. Share of small business card mail offers that were prescreened, 6‐month moving average, 2006‐09

Source:  Mintel Comperemedia.
Report to the Congress on the Use of Credit Cards by Small Businesses 21

 

average prime rate (figure 4).28 These data also indicate that the minimum APR for new 

purchases tends to be slightly lower for business cards than for personal cards. It is important to 

keep in mind that these data only refer to the lowest possible APR for which a consumer or small 

business may qualify.29 Discussions with issuers indicated that the ultimate pricing decision 

depends on a risk assessment of the firm and the card’s principal guarantor. In other words, 

issuers practice risk-based pricing on their small business cards. Similarly, issuers determine 

credit card line sizes based at least in part on an analysis of risk. The small businesses deemed 

most creditworthy may be offered relatively large lines and low APRs. 

 

28 Credit card mail often discloses an APR range (for example, 11.99 to 19.99 percent) for purchases following any 

applicable introductory rate period. The data in figure 5 refer to the lower bound of these ranges, or the specific rate 

disclosed in cases where there is no range. Issuers determine the actual APR for an account after fully evaluating 

the applicant. 

The prime rate series shown in figure 5 is the rate posted by a majority of top 25 (by assets in domestic offices) 

insured U.S.-chartered commercial banks. The prime rate is one of several base rates used by banks to price shortterm business loans. See Board of Governors of the Federal Reserve System, Statistical Release H.15, “Selected 

Interest Rates,” www.federalreserve.gov/releases/h15/data.htm. 

29 The differences between the consumer and small business rates shown in figure 4 may stem from direct mail and 

prescreening being more prevalent in the consumer card space than in the small business card space. At the same 

time, however, as discussed in more detail later, data from the 2003 Survey of Small Business Finances also 

indicates that business card rates are somewhat lower than personal card rates in 2003. 

0

2

4

6

8

10

12

14

16

Jun‐05 Dec‐05 Jun‐06 Dec‐06 Jun‐07 Dec‐07 Jun‐08 Dec‐08 Jun‐09 Dec‐09

Percent

Consumer cards Small business cards Prime rate

4.  Average minimum purchase (go‐to) annual percentage rate (APR) offered (based on number of

offers),  6‐month moving average, 2005‐09

Note:  Purchase (go‐to) APR refers to the regular rate applied to revolving balances after any applicable promotional rate

period.  

Source:  For prime rate, Federal Reserve Board; for consumer and small business card rates, Mintel Comperemedia.
22 Board of Governors of the Federal Reserve System

Although the maximum possible APR for new purchases is not available in the data 

acquired by the Board from Mintel, disclosures found on major issuers’ websites as of early 

April 2010 suggest that there can be large differences in pricing by risk. Among several 

different small business card disclosures that advertised a range of potential APRs for which an 

applicant might qualify, the most narrow range Board staff observed was 6 percentage points 

(that is, the lowest possible APR was close to 11 percent and the highest possible APR was close 

to 17 percent). Several other disclosures had wider ranges; the largest range observed was 

13 percentage points. 

Nearly one-third of SLOOS respondents and nearly 50 percent of large bank respondents 

said that their bank had increased spreads on new small business credit card accounts during the 

six months prior to the survey. No banks answered that they had reduced spreads. 

Based on a review of small business credit card disclosures available on a few of the 

largest issuers’ websites, cash advance APRs currently tend to exceed the maximum possible 

APR for purchases and may be set according to firm or cardholder risk. According to data from 

Mintel, nearly 50 percent of small business credit card offers between 2005 and 2009 advertised 

a cash advance APR of at least 20 percent. The likelihood of a small business card offer posting 

a cash advance APR in excess of 20 percent increased sharply at the beginning of 2008 and then 

declined in 2009, as shown in figure 5. Figure 5 also suggests that small business card offers are 

generally less likely than consumer card offers to advertise a cash advance APR over 20 

percent.30

Disclosures from issuers’ websites indicated that penalty APRs on business cards could 

be well over 20 percent. Some card disclosures indicate that the penalty APR is capped at just 

 

30 Note that the credit limit for cash advances may differ from the purchase credit limit. 

0

10

20

30

40

50

60

70

80

90

Jun‐05 Dec‐05 Jun‐06 Dec‐06 Jun‐07 Dec‐07 Jun‐08 Dec‐08 Jun‐09 Dec‐09

Percent

Small business Consumer

5.  Share of card offers with cash advance annual percentage rate (APR) over

20 percent,  6‐month moving average, 2005‐09

Source:  Mintel Comperemedia.
Report to the Congress on the Use of Credit Cards by Small Businesses 23

 

under 30 percent. Penalty APRs may be applied to existing or future balances when the 

cardholder violates the terms of the credit card agreement, as discussed in more detail below. In 

at least one case, the penalty APR varies according to the type or severity of the cardholder’s 

violation. 

Fees, such as those for a late payment or cash advances, do not typically vary across 

accounts based on firm or cardholder risk. Lenders do not heavily market cards with annual fees 

to small businesses; Mintel data indicate that only about 20 percent of direct mail offers to small 

businesses in 2008 and 2009 were for credit cards with an annual fee. 

Lenders do, however, heavily market cards with introductory promotional pricing such as 

an introductory purchase or balance transfer APR. More than three-quarters of small business 

card offers during this period included introductory promotional pricing. 

MANAGEMENT OF SMALL BUSINESS CREDIT CARD ACCOUNTS

Because of the open-ended nature of credit card accounts, issuers conduct ongoing 

reviews of accounts and customers to reassess risk. Business credit card contracts typically 

stipulate that the issuer has the right to close accounts or alter many of the terms and conditions 

on existing accounts at any time. Credit line reductions or pricing changes may be triggered by a 

number of events, including missing a payment, taking cash advances, adverse information 

acquired about the firm or personal guarantor, or certain changes in payment patterns such as 

paying only the minimum due after a long history of paying the balance in full each month.31 

Issuers often disclose on their websites the conditions under which the penalty APR may 

be assessed on existing or future business credit card balances. These conditions can differ 

considerably from one issuer or card product to the next; the following list describes some of the 

types of conditions Board staff observed when looking at small business card disclosures 

available on major issuers’ websites or in discussions with issuers: 

 multiple instances of failure to make the minimum payment by the due date 

 exceeding the credit limit one or multiple times 

 making a payment that is returned 

 defaulting on any other account with the issuer of the credit card 

 defaulting on any other account with another creditor 

 a large increase in the firm’s overall debt level relative to its financial resources 

Deterioration in general economic conditions or in the issuing bank’s balance sheet may 

also trigger broad-based account actions. In our discussions with issuers, most said that they had 

closed a substantial fraction of inactive small business card accounts during 2008 and 2009. 

 

31 Off-account adverse information about the business may come from consumer or business credit bureaus or an 

issuing bank’s internal records (for instance, if the business has become delinquent on other credit accounts with the 

institution). 
24 Board of Governors of the Federal Reserve System

Some also mentioned closing or reducing lines on relatively risky accounts. And some issuers 

said that they had raised interest rates across much or all of their portfolio. 

Responses to the April SLOOS suggest that, on net, issuers continue to tighten terms and 

conditions on existing credit card accounts. Of large banks surveyed, 35 percent (7 out of 20) 

said that their bank had, over the previous six months, raised spreads of interest rates charged on 

existing small business credit card accounts over their costs of funds; none said they had lowered 

spreads. Six large banks out of 20 said that over the past six months they had increased the 

frequency with which active accounts were closed, compared with one large bank saying it had 

reduced the frequency of such closures. In terms of the frequency of inactive account closures, 

the responses were the same as for active account closures. Smaller banks reported taking such 

adverse actions much less often. 

THE COSTS AND PROFITABILITY OF SMALL BUSINESS CREDIT CARD PROGRAMS

In Board staff’s discussions with issuers, many indicated that issuing and servicing costs 

are higher for small business cards relative to consumer cards. They gave several reasons for the 

higher costs, as listed below: 

 Judgmental review, in addition to automated review, is used more often in 

assessments of business credit card applications and management of business credit 

card accounts. 

 Obtaining data from business credit bureaus is expensive relative to consumer credit 

bureaus. 

 Administrative costs are higher, stemming from detailed spending reports and 

managing multiple card holders per account with (potentially) different spending 

limits. 

 Banks provide more customer service personnel for small business accounts. 

 Fraud is more difficult to anticipate and detect for small business cards. 

 The small business card market is smaller, with fewer opportunities to gain 

economies of scale. 

 Losses on delinquent small business card accounts tend to be larger than on 

delinquent consumer card accounts because average spending on small business cards 

is higher. 

 Collecting overdue balances from small businesses can be more difficult than 

collecting from individuals. 

Several issuers indicated that, historically, small business card loss rates have been 

roughly 20 to 30 percent greater than for consumer cards. In an economic downturn, issuers 

expect loss rates to rise more quickly for small business cards relative to consumer cards since 

the typical small business is more susceptible to economic downturns than the typical consumer 

cardholder. Consistent with that expectation, business bankruptcy filings rose by 114 percent 

between 2007 and 2009, compared with about a 70 percent rise in consumer filings, according to 
Report to the Congress on the Use of Credit Cards by Small Businesses 25

 

data from the Administrative Office of the U.S. Courts and compiled by the American 

Bankruptcy Institute.32 

One issuer indicated that despite higher costs associated with small business cards, 

profitability, on average, has been similar to that of consumer cards. Another issuer, however, 

reported that net income from small business cards has generally been about 20 percent lower 

than for their consumer cards. 

 

 

32 See the American Bankruptcy Institute website at http://www.abiworld.org. 
26 Board of Governors of the Federal Reserve System

(This page is intentionally blank.) 
27 

Credit Card Use among Small Businesses 

This part of the report discusses the use of credit cards by small businesses. The first 

section describes the evolution over the past decade of the use of credit cards (both business 

cards and personal cards) by small businesses and quantifies the extent to which small businesses 

currently rely on credit cards as a source of finance. The second section compares firms that use 

cards with those that do not use cards and firms that borrow on cards with those that do not 

borrow on cards. Characteristics examined include firm size, age, creditworthiness, and the use 

of traditional sources of credit such as lines of credit and loans from financial institutions. The 

third section focuses on differences in card use between more-risky firms and less-risky firms, 

including a discussion of the intensity with which cards are used for both transactions and 

borrowing. Finally, the fourth section examines access to credit cards and presents some 

information on card terms (interest rates) and changes in terms and conditions experienced by 

card-using firms during 2009. 

The analysis that follows is based largely on data obtained from the 2003 SSBF and the 

2009 NFIB survey and focuses on employer firms with 50 or fewer employees.33 In the text that 

follows, “small businesses” and “small firms” both refer to employer firms with 50 or fewer 

employees. 

 

33 The statistics discussed in this section are primarily special tabulations of data from the 2009 NFIB survey and the 

1998 and 2003 SSBF. Other sources of information on small business credit card use include the Kauffman Firm 

Survey (http://sites.kauffman.org/kfs), which focuses on new and emerging firms that started operations in 2004; the 

National Small Business Association, which periodically surveys its membership (in particular, see 2009 Small 

Business Credit Card Survey available at www.nsba.biz/docs/09CCSurvey.pdf) and earlier surveys conducted by the 

NFIB, including William J. Dennis, Jr. (2008), National Small Business Poll: Access to Credit, National Federation 

of Independent Businesses, NFIB, Washington, vol. 8 (7); and William J. Dennis, Jr. (2008), National Small 

Business Poll: Credit Cards, National Federation of Independent Businesses, NFIB, Washington, vol. 8 (3). These 

sources represent either subsets of small businesses (for example, the Kauffman firm data survey represents new and 

emerging firms starting in 2004, and the NSBA surveys represent its membership) or do not contain all of the 

information on credit card use contained in the recent NFIB and SSBF surveys such as information on personal 

versus business cards and information on the creditworthiness of the business. 

Section 506 of the Credit CARD Act specifies that this report examine small firms with 50 or fewer employees. 

Although the 2009 NFIB survey and the 2003 SSBF define small businesses more broadly, they each include 

subsets of firms that are nationally representative of employer firms with fewer than 50 employees. Both surveys 

utilized the Dun & Bradstreet sampling frame and asked similar questions about credit card use. Appendix table 1.A 

presents credit card use information for 2003 for all businesses with fewer than 500 employees and subsets of 

nonemployer firms, employer firms with 50 or fewer employees, and employer firms with more than 50 employees. 

Nonemployer firms tend to be smaller and younger than employer firms, are less apt to use cards of any type, and 

are less apt to borrow on cards than are employer small businesses. 
28 Board of Governors of the Federal Reserve System

TRENDS IN SMALL BUSINESS CREDIT CARD USE AND CREDIT CARD BORROWING,

1998–2009 

Among small businesses, credit cards are the second most commonly used financial 

product. Only checking accounts are used by more small businesses.34 Credit cards can serve as 

a convenient alternative to paying expenses by cash or check if a business pays balances on time 

and in full each month. They can also serve as a source of credit when balances are carried from 

month to month. In this report, using credit cards as a source of credit, or borrowing on credit 

cards, means carrying balances after monthly payments are made. 

In 2009, 83 percent of small firms used credit cards for either transaction or borrowing 

purposes, up from 70 percent in 1998 (table 1). Both personal and business cards are used by 

small businesses for business purposes. The growth in card use over the past decade has been 

primarily from the business card segment. In 1998, personal cards were used more commonly 

than business cards among small firms. By 2003, the percentage of small businesses using 

business cards had become larger than the percentage using personal cards. Between 1998 and 

2009, the percentage of small firms using business cards increased substantially, from 37 percent 

of firms to 64 percent. At the same time, the share of firms using personal cards appears to have 

declined somewhat, from 47 percent in 1998 to 41 percent in 2009. 

Table 1 also presents evidence that only a minority of small firms borrowed using either 

personal or business credit cards in 1998, 2003, and 2009. In 1998, 17 percent of small firms 

(24 percent of small firms using cards) borrowed using either business or personal cards. At the 

end of 2003, 24 percent of small firms (30 percent of card users) borrowed, but by the end of 

2009, only 18 percent of small firms (22 percent of card users) reported borrowing on cards. 

While the proportion of firms borrowing using personal cards stayed roughly constant from 1998 

to 2009, the proportion of small firms borrowing on business cards more than doubled, 

increasing from 5.9 percent to 12.3 percent.35 With nearly 80 percent of card users in 2009 

paying off their balances every month, small firms use credit cards primarily for transactions 

purposes. 

To help further characterize the importance of credit card borrowing, it is useful to 

consider other sources of credit, such as lines of credit, or loans from financial institutions for 

equipment, vehicles, term loans, and leases. Among small firms at the end of 2009, 46 percent 

had a line of credit and 36 percent had a business loan (not a line of credit or credit card) with a 

financial institution.36 

 

34 See Mach and Wolken, “Financial Services Used by Small Businesses,” table 6, pp. 174–77, note 19. 35 Some of this growth is associated with the large increase in small business credit card use. 36 The statistics in this paragraph were calculated from the 2009 NFIB survey for small employer firms with 50 or 

fewer employees. 
Report to the Congress on the Use of Credit Cards by Small Businesses 29

 

1998 2003 2009

Used credit card 70.3% 79.2% 83.1%

 Used business credit card 37.2% 51.9% 63.7%

 Used personal credit card 46.6% 46.5% 41.2%

Borrowed on credit card 17.0% 23.6% 17.9%

Borrowed on credit card 

 (percent of card users) 24.2% 29.7% 21.5%

Borrowed on business credit card 5.9% 14.9% 12.3%

Borrowed on business credit card 

 (percent of business card users) 15.9% 28.7% 19.2%

Borrowed on personal credit card 12.7% 13.3% 11.5%

Borrowed on personal credit card 

 (percent of personal card users) 27.3% 28.6% 27.8%

 1. Borrowing on credit cards means carrying balances after monthly payments are made.

 Source: Survey of Small Business Finances, 1998 and 2003, tabulated for employer firms with 50 

or fewer employees; and the 2009 National Federation of Independent Business (NFIB) survey, 

tabulated for employer firms with 50 or fewer employees. See William J. Dennis, Jr. (2010), Small 

Business Credit in a Deep Recession (Washington: NFIB, February). Employer firms have at least 

one employee other than principal owner working in firm.

Table 1. Credit card use and borrowing, by employer firms with 50 or fewer

 employees, 1998, 2003, and 20091

Percent of population unless otherwise noted

In sum, credit card use by small businesses has increased since the early 1990s. At the 

end of 2009, more than 83 percent of small firms used cards. Most card-using firms—nearly 

80 percent—used cards for transactions purposes or convenience. Only 18 percent of small 

firms used cards as a source of credit. Finally, businesses use both personal and business cards 

in their businesses. Over the decade, the percentage of firms using personal cards declined from 

47 percent to 41 percent, whereas the percentage using business cards increased from 37 percent 

to 64 percent. 

CHARACTERISTICS OF SMALL BUSINESSES THAT USE CREDIT CARDS 

 This section compares small firms that use credit cards with those that do not use credit 

cards and small firms that borrow on cards with those that do not borrow on cards. The firm 

characteristics examined are firm size (number of employees), firm age, firm credit score, and 

indicators for having lines of credit, having business loans (other than cards, lines, or mortgages), 

and having a mortgage used for business purposes. Small and young firms and firms with low 

credit scores are likely to have more difficulty than other firms obtaining loans and lines of credit 

from financial institutions. If credit cards serve primarily as a substitute for these other types of 
30 Board of Governors of the Federal Reserve System

credit, the likelihood of having these other types of credit would be expected to be lower among 

card users (or, alternatively, card borrowers) than among firms that do not use (borrow on) cards. 

Credit Scores

The Congress specified that this report should address the cost and availability of credit 

for nonprime borrowers. Classification as a nonprime borrower is typically based on having a 

consumer credit score below some critical value. Lenders often use a business owner’s personal 

credit score, obtained from one or more of the three major national consumer credit reporting 

agencies (Equifax, Experian and TransUnion), to assess the creditworthiness of the business. 

Lenders may also consider a business credit score, obtained from Dun & Bradstreet Corporation 

(D&B) or FICO, or produced by running their own business score models. 

Information regarding the consumer credit scores of the small business owners 

participating in the 2009 NFIB survey and the 2003 SSBF are not available. However, the most 

recent value of D&B’s PAYDEX score for the firm is available for both surveys. This score is 

developed from firm-specific data, such as prior repayment history, and forecasts the amount of 

time from a due date that it will take a business customer to complete the payment terms of a 

credit contract.37 The higher the score, the shorter the time a customer typically takes to 

complete payment terms, and the more likely the credit supplier is to extend credit. These scores 

range from 1 to 100, with an 80 meaning that the creditor can expect payment in line with terms 

of the credit agreement. In 2009, 34 percent of small firms scored 80 or above. In the analysis 

that follows, we use a PAYDEX score below 80 as a proxy for a nonprime borrower; such firms 

are referred to as risky firms or low-score firms. 

Characteristics Associated with Card Use 

In previous studies that looked at firms with fewer than 500 employees, firm size, firm 

age, and credit score are some of the variables that have been found to be important in explaining 

credit card use among all small businesses.38

Table 2 shows the means for number of employees, firm age, and credit score for firms 

that use cards, firms that do not use cards, firms that borrow using cards, and those that do not 

borrow using cards, for employer firms with 50 or fewer employees. In addition, the table 

includes the proportion of small firms that had a line of credit, had a business loan other than a 

line of credit, had either a line of credit or a business loan, and had a mortgage used for business 

purposes. Panel A presents data from 2009, and panel B presents data for 2003. The discussion 

that follows focuses on the 2009 data. 

 

37 See Dun & Bradstreet, “D&B Rating, PAYDEX, and Score Tables—United States,” webpage, 

www.dnb.com/us/customer_service/paydex_tables.html. 38 See Board of Governors of the Federal Reserve System (2002), Report to the Congress on the Availability of 

Credit to Small Businesses (Washington: Board of Governors, September); and Board of Governors of the Federal 

Reserve System (2007), Report to the Congress on the Availability of Credit to Small Businesses (Washington: 

Board of Governors, October). 
Table 2. Credit card use and characteristics of employer firms with 50 or fewer employees, 2009 and 2003

 A. 2009

Number of 

employees

Firm credit 

score1

Firm age 

(years)

Have a line 

of credit2

Have business 

loan from 

financial 

institution2

Have line of 

credit or 

business loan

Any employer firm with 50 or fewer employees 6.27 62.91 17.00 45.6% 35.5% 61.2% Do not use cards 5.26 55.61 15.49 47.1% 40.3% 70.6% Use cards 6.47 64.42 17.31 45.3% 34.5% 59.2% Do not borrow using cards 6.21 64.54 17.15 45.8% 31.4% 58.9% Borrow using cards3 6.56 55.29 16.30 44.5% 54.4% 71.4% 

 B. 2003

Number of 

employees

Firm credit 

score1

Firm age 

(years)

Have a line 

of credit2

Have business 

loan from 

financial 

institution2

Have line of 

credit or 

business loan

Any employer firm with 50 or fewer employees 6.32 53.43 14.65 37.0% 45.1% 60.9% Do not use cards 5.50 46.37 15.24 22.3% 34.5% 45.9% Use cards 6.54 55.30 14.49 40.8% 47.9% 64.8% Do not borrow using cards 6.78 56.31 15.23 36.4% 42.0% 57.8% Borrow using cards3 4.83 44.02 12.77 38.7% 55.0% 70.9% 

 Source: 2009 data are tabulated from the 2009 National Federation of Independent Business survey; 2003 data are tabulated fSurvey of Small Business Finances.  2. Variable equal to one if firm has the loan type and zero otherwise. Cell value is the percent of firms having loan type listed 

 Population means except as noted

 1. Dun and Bradstreet PAYDEX score; values range from 1 to  3. Borrowing on credit cards means carrying balances after monthly payments are made.
32 Board of Governors of the Federal Reserve System

As mentioned previously, 83 percent of small firms in 2009 used credit cards and 

17 percent did not. On average, credit card–using firms were slightly larger (6.5 employees 

versus 5.3 employees), somewhat older (17.3 years versus 15.5 years), and had higher (better) 

credit scores (64.4 versus 55.6) than firms that did not use cards. In addition, credit card–using 

firms were less likely to have a line of credit or a loan from a financial institution and more 

likely to have a mortgage used for business purposes than were non-card-using firms. 

Compared with firms that did not borrow using credit cards, firms that borrowed on 

credit cards in 2009 had lower credit scores (55 versus 65) and were somewhat younger. Firms 

borrowing with cards were slightly less likely to have a line of credit but quite a bit more likely 

to have a business loan or mortgage, suggesting that overall credit needs for credit card–

borrowing firms may be greater than for nonborrowing card users, and that credit cards may 

provide a source of credit that is not strictly a substitute for other types of business credit. 

INTENSITY OF CREDIT CARD USE AND BORROWING: LOW VERSUS HIGH CREDIT 

SCORE FIRMS 

This section compares credit card use of small firms that had low credit scores with those 

that had high credit scores. Included in this section is an examination of the intensity of credit 

card use and borrowing—that is, the amounts charged and borrowed by the business using credit 

cards. In table 3, panels A, B, and C contain information discussed in this section.39

 A firm’s credit score should indicate the creditworthiness of the firm. In table 3, credit 

card use is tabulated for small firms with scores less than 80 (more-risky firms) and for small 

firms with scores above 80 (less-risky firms). While more-risky firms do not use credit cards as 

often as less-risky firms (81 percent versus 88 percent), they nevertheless have a substantially 

higher incidence of borrowing on credit cards than less-risky firms (20 percent versus nearly 

14 percent). 

Small firms with low credit scores are substantially less apt to use business credit cards and 

slightly more likely to use personal credit cards than firms with high credit scores (table 3, panel 

A). Still, low-score firms are more likely than high-score firms to borrow using business cards 

(14 percent of low-score firms and 10 percent for high-score firms). Low-score firms are also 

more likely than high-score firms to borrow using personal cards (13 percent of low-score firms 

versus 9 percent of high-score firms). 

 

39 Table 1.A in the appendix contains credit card use information from 2003 for all businesses with fewer than 

500 employees, nonemployer firms, employer firms with 50 or fewer employees, and employer firms with more 

than 50 but fewer than 500 employees. These data are not available for later years. Credit card use among 

nonemployer firms, which by definition are smaller than employer firms, was similar to credit card use by employer 

firms with 50 or fewer employees (smaller employer firms). Nonemployer firms were less likely to use cards, 

especially business cards. They were about as likely to borrow on cards as were smaller employer firms. However, 

among card users, nonemployer firms were more likely to borrow on business cards and somewhat less likely to 

borrow on personal cards than the smaller employer firms. 
Report to the Congress on the Use of Credit Cards by Small Businesses 33

 

Table 3, panel B, contains information on levels of card charges and card borrowings 

from the 2003 SSBF. The 2009 data, shown in table 3, panel A, are somewhat limited because 

questions in the 2009 NFIB survey regarding charges and borrowings (balances remaining after 

payments) required respondents to answer within ranges (for example, $500 to $1,000) rather 

than provide specific dollar amounts. These data do not provide enough information to calculate 

average values. Moreover, without additional information regarding the scale of the firm’s 

operation (such as sales), it is difficult to know the relative importance of the levels of charges 

and outstanding balances. It is reasonable to expect charges and outstanding balances to increase 

with firm size, but the only firm-size indicator available in the 2009 data is employment. The 

2003 SSBF, in contrast, contains information on the dollar value of charges and borrowing on 

credit cards. Consequently, this section will begin by examining the dollar value of charges and 

outstanding balances using data from the 2003 SSBF shown in table 3, panel B. Comparisons 

will also be made between risky firms (credit scores less than 80) and less-risky firms (credit 

scores 80 or larger). The dollar values from the 2003 SSBF are then converted to ranges (table 3, 

panel C) to facilitate comparison with the 2009 data. 
34 Board of Governors of the Federal Reserve System

Percent of

employer firms 

with 50 or fewer 

employees

Percent of

risky firms

(Credit score 

<80)

1

Percent of

less risky firms

(Credit score 

>=80)

1

Used credit cards 83.1% 80.8% 87.6%

 Borrowed on credit cards 17.9% 20.0% 13.7%

Used business credit cards 63.7% 58.9% 73.1%

 Charged <$1,000 22.5% 23.1% 21.7%

 Charged $1,000-<$5,000 26.9% 24.7% 31.2%

 Charged $5,000 or more 14.4% 11.1% 20.2%

Borrowed on business credit cards2 12.3% 13.5% 9.9%

 Borrowed <$1,000 2.4% 2.6% n/a

 Borrowed $1,000-<$5,000 4.6% 6.1% n/a

 Borrowed $5,000 or more 5.3% 4.9% n/a

Used personal credit cards 41.2% 42.7% 38.4%

 Charged <$1,000 18.5% 17.8% 20.0%

 Charged $1,000-<$5,000 13.7% 14.0% 13.4%

 Charged $5,000 or more 8.9% 10.9% 5.1%

Borrowed on personal credit cards2 11.5% 12.9% 8.6%

 Borrowed <$1,000 2.0% 2.8% n/a

 Borrowed $1,000-<$5,000 4.1% 5.0% n/a

 Borrowed $5,000 or more 5.5% 5.2% n/a

Memo: Percent of employer firms with 

50 or fewer employees 100.0% 65.9% 34.1%

 Note: n/a indicates too few observations to be statistically reliable.

 2. Borrowing on credit cards means carrying balances after monthly payments are made.

 Source: 2009 National Federation of Independent Business (NFIB) survey, tabulated for 

employer firms with 50 or fewer employees. See William J. Dennis, Jr. (2010), Small Business 

Credit in a Deep Recession (Washington: NFIB, February).

 1. Dun & Bradstreet PAYDEX score; values range from 1 to 100.

A. 2009 amounts charged and borrowed, by type of card 

Table 3. Credit card use details for employer firms with 50 or fewer employees,

 by firm credit score
Report to the Congress on the Use of Credit Cards by Small Businesses 35

 

 B. 2003 means and medians of charges and amounts borrowed

Employer firms 

with 50 or fewer 

employees

Risky firms

(Credit score 

<80)1

Less risky firms

(Credit score 

>=80)1

Any credit card

Mean amount charged $3,224 $3,163 $3,390

Median amount charged $1,000 $1,000 $1,200

Mean amount borrowed2 $9,328 $9,013 $11,166

Median amount borrowed2 $3,500 $3,348 $4,000

Business credit card

Mean amount charged $2,983 $2,908 $3,179

Median amount charged $1,000 $1,000 $1,500

Mean amount borrowed2 $6,402 $6,164 $7,808

Median amount borrowed2 $3,000 $3,000 $3,000

Personal credit cards

Mean amount charged $2,161 $2,080 $2,429

Median amount charged $650 $600 $1,000

Mean amount borrowed2 $9,353 $8,972 $11,717

Median amount borrowed2 $3,000 $3,000 $3,000

Memo: Percent of employer firms 

with 50 or fewer employees 100.0% 74.8% 25.2%

 2. Borrowing on credit cards means carrying balances after monthly payments are made.

 Source: 2003 Survey of Small Business Finances.

 1. Dun & Bradstreet PAYDEX score; values range from 1 to 100.

Table 3. Credit card use details for employer firms with 50 or fewer employees,

 by firm credit score
36 Board of Governors of the Federal Reserve System

C. 2003 amounts charged and borrowed, by type of card 

Percent of

employer firms with 

50 or fewer 

employees

Percent of

risky firms

(Credit score 

<80)

1

Percent of

less risky firms

(Credit score 

>=80)

1

Used credit cards 79.2% 77.5% 84.4%

 Charged <$1,000 33.8% 34.1% 32.5%

 Charged $1,000-<$5,000 30.9% 29.6% 34.7%

 Charged $5,000 or more 14.6% 13.7% 17.3%

Borrowed on credit cards2 23.6% 26.9% 13.7%

 Borrowed <$1,000 4.8% 5.1% 3.8%

 Borrowed $1,000-<$5,000 9.7% 10.6% 4.6%

 Borrowed $5,000 or more 10.0% 11.2% 6.4%

Used business credit cards 51.9% 50.1% 57.1%

 Charged <$1,000 21.7% 22.3% 20.0%

 Charged $1,000-<$5,000 21.1% 19.4% 25.9%

 Charged $5,000 or more 9.1% 8.4% 11.1%

Borrowed on business credit cards2 14.9% 17.0% 8.6%

 Borrowed <$1,000 3.2% 3.5% 2.4%

 Borrowed $1,000-<$5,000 6.3% 7.6% 2.6%

 Borrowed $5,000 or more 5.4% 6.1% 3.6%

Used personal credit cards 46.5% 47.7% 43.1%

 Charged <$1,000 25.1% 26.5% 21.1%

 Charged $1,000-<$5,000 15.8% 15.8% 15.6%

 Charged $5,000 or more 5.8% 5.5% 6.4%

Borrowed on personal credit cards2 13.3% 15.3% 7.3%

 Borrowed <$1,000 3.4% 3.8% 2.2%

 Borrowed $1,000-<$5,000 4.3% 5.2% 1.8%

 Borrowed $5,000 or more 5.5% 6.3% 3.3%

Memo: Percent of employer firms with 

50 or fewer employees 100.0% 74.8% 25.2%

 2. Borrowing on credit cards means carrying balances after monthly payments are made.

 Source: 2003 Survey of Small Business Finances.

 1. Dun & Bradstreet PAYDEX score; values range from 1 to 100.

Table 3. Credit card use details for employer firms with 50 or fewer employees,

 by firm credit score

 
Report to the Congress on the Use of Credit Cards by Small Businesses 37

 

Intensity of Card Use 

 As shown in table 3, panel B, in 2003, small firms that used credit cards, on average, 

charged $3,224 of new business expenses each month. 40 Users of business cards charged an 

average of $2,983, and users of personal cards on average charged $2,161 a month. Overall, 

risky firms were somewhat less likely to use cards than less-risky firms in 2003. Risky firms 

(column 2 of table 3, panel B) charged somewhat less than the less-risky firms (column 3)—

$3,163 versus $3,390—in total, and also charged somewhat less on business and on personal 

cards. 

In order to provide some perspective on the importance of credit card charges, credit card 

charges as a percentage of total expenses are calculated for each card-using firm for 2003. 

Charges on cards averaged about 18 percent of total expenses, with more than half of all card 

charges being made on business cards. Charges ranged from zero to $150,000 per month. 

Although monthly charges tended to increase with firm size, charges as a percentage of expenses 

generally declined with firm size. Card charges as a percentage of expenses were higher for 

risky firms than for less-risky firms—20.3 percent compared with 14.2 percent. Similar 

differences were found for charges on business cards or charges on personal cards separately. 

Even though the nominal level of charges was similar between risky and less-risky firms, relative 

to total expenses, cards were used more intensively by riskier firms. 

Another way to gauge the importance of credit card charges is to compare total aggregate 

charges across all small firms with total small firm aggregate expenses. The total charges to 

credit cards by small firms in 2003 were 4.4 percent of total expenses recorded by these firms. 

For small risky firms, such charges equaled 4.8 percent of their total expenses, whereas for small 

less-risky firms, charges equaled 3.7 percent. 

Data from 2009 provides only ranges of values for credit card charges and borrowings 

(table 3, panel A). Comparable data for 2003 are presented in table 3, panel C. In 2003, 

9.1 percent of firms charged $5,000 or more on business cards and 5.8 percent charged $5,000 or 

more on personal cards. In 2009, 14.4 percent of firms charged $5,000 or more on business 

cards and 9 percent of firms charged $5,000 or more on personal cards. Among risky firms, a 

smaller proportion charged $5,000 or more on business cards than less-risky firms, and this result 

holds in both years. In 2003, the percentage of risky firms charging $5,000 or more to personal 

cards is smaller than the percentage of less-risky firms charging 5,000 or more (5.5 percent 

versus 6.4 percent). By 2009, the percentage of risky firms charging $5,000 or more to personal 

cards is more than twice the percentage of less-risky firms charging $5,000 or more (10.9 percent 

versus 5.1 percent). Regardless of risk level or type of card used, only a small fraction of small 

businesses charged more than $5,000 per month on credit cards. 

 

40Statistics shown in table 3, panels B and C, as well as other statistics discussed in this section, were calculated for 

employer firms with 50 or fewer employees from the 2003 SSBF data by Board staff. 
38 Board of Governors of the Federal Reserve System

Intensity of Borrowing on Cards 

As stated above, a substantial majority of card users do not carry balances month to 

month. In 2003, 24 percent of the population of small firms and 30 percent of small-firm card 

users carried balances after monthly payments. As shown in table 3, panel B, in 2003 credit card 

borrowings averaged $9,328. It is worth noting that the median amount of borrowing was 

considerably lower at $3,500; in other words, half of firms reported borrowing no more than 

$3,500. As noted earlier, riskier firms were more likely to borrow using cards than less-risky 

firms, but on average, riskier firms carried lower balances than less-risky firms ($9,013 

compared with $11,166). 

While in 2003, 24 percent of all small businesses borrowed using credit cards, in the 

aggregate, only 1.4 percent of the outstanding debt of small firms was credit card borrowing. 

Business card borrowings accounted for 0.6 percent of outstanding small firm loans, whereas 

personal card borrowing accounted for 0.8 percent. Credit card debt accounted for 1.5 percent of 

risky firms’ outstanding loans, and it accounted for 0.9 percent of less-risky firms’ outstanding 

loans.41 

 Comparisons between 2009 and 2003 are limited to an examination of the distribution of 

borrowings (table 3, panels A and C, respectively). In 2003, 10 percent of firms borrowed 

$5,000 or more on business cards and 6 percent borrowed $5,000 or more on personal cards. In 

2009, these percentages were 5 percent and 6 percent, respectively. In 2003, a larger percentage 

of risky firms borrowed $5,000 or more on business cards and on personal cards than did lessrisky firms. Data on the distribution of borrowings for less-risky firms is not available for 2009 

due to limited sample sizes. However, comparisons for the riskier firms between 2003 and 2009 

are available. In 2003, 6 percent of the riskier firms borrowed $5,000 or more on business cards 

and 6 percent borrowed $5,000 or more on personal cards. In 2009, these percentages were both 

5 percent. In sum, in both 2003 and 2009 relatively few small businesses borrowed more than 

$5,000 on either business or personal credit cards. 

 

 

41 Comparable data for 2009 is unavailable. 
39 

Credit Card Access, Terms, and Conditions 

This section focuses on small businesses’ access to new credit cards in 2009, interest 

rates paid by small credit card borrowing firms in 2003, and changes in terms and conditions that 

small businesses have recently experienced on their existing credit cards. To help assess credit 

access, we look at the frequency with which firms seeking new credit cards are able to obtain 

them. With the exception of information on card interest rates from the 2003 SSBF, data for this 

section, which is presented in table 4, is drawn from the 2009 NFIB survey and profiles the 

experiences of small firms during 2009.42

CREDIT CARD ACCESS: APPLICATIONS FOR NEW CARDS

Table 4 presents information drawn from the 2009 NFIB survey, including the percentage 

of firms applying for cards, the outcome of those applications, and whether the recent application 

was for a business or a personal card. The table includes data for three categories of firms: 

small businesses, riskier small businesses (credit score less than 80), and less-risky small 

businesses (credit score 80 or greater). For each of these categories, there are two columns: The 

first column titled “Percent of firms” presents the percentage of that category of firms having the 

characteristic identified by the row of the table, and the second column titled “Percent of 

applicants” presents the percentages defined over the firms in that category that applied for 

credit cards during 2009. For example, as shown in row 2, “Applied for business card,” 

15.7 percent of employer firms with 50 or fewer employees applied for a business card 

(column 1), whereas 80 percent of employer firms with 50 or fewer employees that applied for a 

card applied for a business card (column 2). 

 During 2009, 19.6 percent of small firms attempted to obtain a new credit card. Among 

those applying for cards, four out of five firms applied for a business card on their most recent 

request. Nearly three-fourths of all firms that applied for a new credit card were successful in 

getting a card (rows A and B), although 15 percent of those applying for a card obtained the card 

with an unsatisfactory limit or terms. More than 20 percent of firms applying for a credit card 

were not able to get a card, and another 5.6 percent did not accept the card because of 

unfavorable terms. Although the sample of firms that applied for cards and received unfavorable 

terms is quite small, among those firms the most prevalent unfavorable terms were either 

inadequate credit limits (80 percent) or unfavorable interest rates (56 percent).43 

 

42 Questions on applications for new credit cards and changes in terms of existing cards were not asked on any of the 

SSBF surveys. The NFIB conducted two credit access polls (see Dennis, Small Business Credit in a Deep 

Recession, note 19; and Dennis, National Small Business Poll: Access to Credit, note 33), as well as a survey on 

credit cards conducted in July 2008 (see Dennis, National Small Business Poll: Credit Cards, note 33). 43 The small samples do not permit comparisons between risky and less-risky firms regarding what was unfavorable 

about the terms. 
Percent of 

firms

Percent of 

applicants

Percent of 

firms

Percent of 

applicants

Percent of 

firms

Applied for business or personal card 19.6% 100.0% 18.5% 100.0% 21.6%  Applied for business card 15.7% 80.0% 14.8% 79.9% 17.3%  Applied for personal card 3.9% 20.0% 3.7% 20.1% 4.3% Outcome:A. Obtained card with acceptable terms/conditions 11.5% 58.7% 9.8% 53.0% 14.6% B. Obtained card, but with unsatisfactory terms/conditions 2.9% 15.0% 3.6% 19.4% 1.8% C. Turned down card because terms/conditions unsatisfactory 1.1% 5.6% 1.4% 7.6% 0.5% D. Was unable to get the card 4.1% 20.7% 3.7% 20.0% 4.7%  Source: 2009 National Federation of Independent Business (NFIB) survey, tabulated for employer firms with 50 or employees. See William J. Dennis, Jr. (2010), Small Business Credit in a Deep Recession (Washington: NFIB, Febr

Table 4. Most recent attempt to obtain new credit card during 2009 for employer firms

with 50 or fewer employees

 1. Dun & Bradstreet PAYDEX score; values range from 1 to 100.

Employer firms with 50 or 

fewer employees

Risky firms

(Credit score <80)1

Less risky 

(Credit score 
Report to the Congress on the Use of Credit Cards by Small Businesses 41

 

Riskier firms were somewhat less likely to apply than less-risky firms. About 72 percent 

of riskier firms that applied obtained a card, compared with about 76 percent of the less-risky 

firms. A slightly greater percentage of less-risky firms applying for a card (21.7 percent) were 

unable to get a card than riskier firms (20.0 percent); but 7.6 percent of riskier firms, compared 

with only 2.5 percent of less-risky firms, turned down a card because of unfavorable terms. 

Small businesses were relatively more successful in obtaining credit cards than other 

forms of credit during 2009. Although roughly similar percentages of small firms applied for 

lines of credit (21 percent) or applied for bank loans (16 percent), the success rate for such 

applicants was only about half the success rate of applicants for credit cards. 

INTEREST RATES ON CREDIT CARDS IN 2003 

Little systematic information exists on the credit card interest rates that small businesses 

face. 44 As discussed in detail earlier, data from Mintel provides information on the minimum 

possible APR advertised for small business credit cards. The 2003 SSBF collected data on card 

interest rates by type of card—business or personal. Comparable data for 2009 are unavailable; 

however, the data from 2003 do provide some information on the level of interest rates by type 

of card and type of firm—risky or less risky. Table 5 summarizes these data. There are two 

main findings. First, average interest rates on personal cards used by businesses were about 

40 basis points higher than business card rates (13.0 versus 12.6 percent). Similar differences 

existed between personal and business rates for risky firms (13.1 versus 12.8 percent) and lessrisky firms (12.3 versus 11.8 percent). Second, in 2003, more-risky firms, on average, paid 

higher interest rates than less-risky firms on both business and personal cards. Interest rates on 

personal cards used in businesses were about 80 basis points higher for risky firms than for lessrisky firms, whereas rates on business cards were 100 basis points higher for the riskier firms. 

Personal card Business card

Employer firms with 50 or 

fewer employees 13.0% 12.6%

 

Risky firms 

(Credit score <80)1 13.1% 12.8%

 

Less risky firms 

(Credit score >=80)1 12.3% 11.8%

 Source: Calculated from the 2003 Survey of Small Business Finances.

Table 5. 2003 average credit card interest rates for employer firms

 with 50 or fewer employees

 1. Dun & Bradstreet PAYDEX score; values range from 1 to 100.

 

44 Data on card interest rates for personal and business cards is available from the 2003 SSBF. Similar information 

was not collected in the recent 2009 NFIB survey, nor is similar data available for other public sources of which we 

are aware. Some information on offer rates and other terms was described earlier in this report. 
42 Board of Governors of the Federal Reserve System

TERMS AND CONDITIONS DURING 2009 

 As shown in the first two columns of table 6, during 2009, 23 percent of small firms had 

the terms or conditions of their most important card changed by the issuer.45 The most frequent 

change reported (by 60 percent of those firms reporting changes) was higher interest rates, 

followed by lowered credit limits (reported by 23 percent). Among all card users, the percentage 

reporting higher interest rates was about 14 percent, whereas the percentage reporting lowered 

credit limits was about 6 percent. About 4 percent of card users indicated that their card was 

canceled. These data are consistent with data from the SLOOS in that, as discussed earlier, a 

substantial fraction of senior loan officers indicated having raised interest rates on small business 

credit card accounts during the last quarter of 2009 and first quarter of 2010. 

 More than 25 percent of risky firms reported changes in terms and conditions compared 

with 18.5 percent of less-risky firms. For both risky and less-risky firms, the most frequent 

change reported was an increase in interest rates, although such changes were less common 

among the less-risky firms. Among card holders, decreases in credit limits were more likely for 

the risky firms (6.9 percent) than for the less-risky firms (3.1 percent). Card cancellations were 

also more frequent among risky firms (4.7 percent) than among less-risky firms (3.6 percent of 

card users). 

 When asked about the effects of the unilateral changes to their most important credit card 

during 2009, 40 percent of small firms experiencing changes indicated that the changes were 

either very harmful or harmful. Risky firms experiencing changes were more likely to have 

found the changes either very harmful or harmful than were less-risky firms. Finally, 1.2 percent 

of risky firms experiencing changes indicated the changes were positive. Those firms reported 

that interest rates were lowered. There did not appear to be any relationship between those 

indicating the changes were harmful and the type of change.46

 

45 Data are from the 2009 NFIB survey. The sample for this section is restricted to employer firms with fewer than 

50 employees where the respondent was an owner and to the 458 sampled firms that completed both the personal 

card and the business card sections of the survey. Of the 751 firms surveyed, 193 firms did not complete the 

personal card section of the questionnaire. 

46 See Dennis, Small Business Credit in a Deep Recession, note 19. 
Report to the Congress on the Use of Credit Cards by Small Businesses 43

 

Percent of 

card users

Percent of 

card users 

who reported 

changes

Percent of 

card users

Percent of 

card users 

who reported 

changes

Percent of 

card users

Percent of 

card users 

who 

reported 

changes

Issuer changed terms or 

conditions 23.0% 100.0% 25.7% 100.0% 18.5% 100.0%

Increased minimum payment 0.7% 3.0% 1.0% 3.9% 0.2% 1.2%

Increased interest rate 13.8% 60.1% 16.1% 62.8% 9.8% 53.1%

Decreased interest rate 0.5% 2.2% 0.8% 3.3% 0.0% 0.0%

Increased credit limit 0.1% 0.4% 0.2% 0.6% 0.0% 0.0%

Decreased credit limit 5.3% 23.1% 6.9% 26.7% 3.1% 16.9%

Canceled card 4.1% 17.7% 4.7% 18.2% 3.6% 19.2%

Shortened grace period 0.6% 2.7% 1.0% 4.0% 0.0% 0.0%

Changed charges/fees 1.1% 4.8% 1.7% 6.7% 0.2% 1.2%

Card company went out of

 business/changed hands 0.2% 0.9% 0.4% 1.4% 0.0% 0.0%

Other 2.5% 11.0% 2.4% 9.3% 2.2% 11.7%

Effect on business from 

changed terms or conditions

Very harmful 3.3% 14.5% 3.6% 13.9% 2.9% 15.9%

Harmful 5.8% 25.4% 8.0% 31.2% 2.1% 11.6%

More irritating than harmful 11.5% 49.9% 11.9% 46.4% 10.8% 58.2%

No effect 2.2% 9.5% 1.9% 7.5% 2.6% 14.2%

Helpful 0.2% 0.9% 0.3% 1.2% 0.0% 0.0%

Table 6. Changes in terms and conditions for most important credit card during 2009 

 for employer firms with 50 or fewer employees

 Source: 2009 National Federation of Independent Business (NFIB) survey, tabulated for employer firms with 50 or 

fewer employees. See William J. Dennis, Jr. (2010), Small Business Credit in a Deep Recession (Washington: 

NFIB, February).

 1. Dun & Bradstreet PAYDEX score; values range from 1 to 100.

Employer firms with 50 or 

fewer employees

Risky firms

(Credit score <80)1

Less risky firms

(Credit score >=80)1

 
44 Board of Governors of the Federal Reserve System

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45 

Adequacy of Disclosures of Terms, Fees, and Other 

Expenses and Protections against Unfair or Deceptive Acts 

or Practices 

Section 506 of the Credit CARD Act requires the Board to review the adequacy of 

disclosures of terms, fees, and other expenses of credit card plans for small businesses. 

Similarly, section 506 of the Act also requires the Board to review the adequacy of protections 

against unfair or deceptive acts or practices relating to credit card plans for small businesses.47

CURRENT PRACTICES REGARDING DISCLOSURES OF TERMS, FEES, AND OTHER 

EXPENSES

As discussed in “Background Regarding the Truth in Lending Act and Existing 

Protections for Credit Card Accounts” of this report, TILA’s substantive protections and 

disclosure requirements for credit cards generally do not apply to business credit card accounts. 

However, based on meetings with card issuers and a review of small business credit card 

disclosures, the Board understands that many card issuers nonetheless provide small business 

cardholders with disclosures similar to the disclosures that are required by TILA for consumer 

credit card accounts. For example, many issuers of small business credit cards provide 

disclosures of key terms such as APRs, other finance charges, and penalty fees. Although it is 

not mandated by TILA or Regulation Z, some business card issuers provide these disclosures in a 

format similar to the format required under TILA and Regulation Z for consumer credit card 

accounts. 48 For example, some small business card issuers provide important disclosures of 

terms and fees in a table that is similar to the tabular format required in connection with 

consumer credit card accounts. The Board notes that issuers of small business credit cards often 

also provide additional disclosures specific to business credit plans, such as disclosures regarding 

the costs associated with obtaining additional employee cards. 

For consumer credit card accounts, the disclosures required under TILA and Regulation 

Z (as amended effective July 1, 2010) have proven in testing to be effective in communicating 

key information to consumers regarding their accounts. During the period from 2006 to 2008,

 

47 For consistency with section 506, this report generally refers to provisions of TILA as either “disclosure” or 

“substantive” provisions. In particular, the Board uses “disclosure” generally to refer to provisions which require 

“disclosures of terms, fees, and other expenses of credit card plans.” Credit CARD Act § 506(a)(2). In addition, 

the Board uses “substantive” generally to refer to provisions which provide “protections against unfair or deceptive 

acts or practices relating to credit card plans” or otherwise prohibit or require certain acts or practices other than 

disclosure of information. Credit CARD Act § 506(a)(3). The Board notes, however, that certain provisions of 

TILA that pertain to disclosures may have related substantive limitations or requirements. 

48 12 C.F.R. part 226. 
46 Board of Governors of the Federal Reserve System

the Board conducted extensive consumer testing on consumer credit card disclosures.49 The 

Board used this testing to develop amendments to Regulation Z and model disclosure forms. 

The Board’s consumer testing focused on: summary table disclosures provided in solicitations 

and applications; disclosures provided at account opening; periodic statement disclosures; and 

subsequent disclosures, such as notices when key account terms are changed. Based on the 

results of its testing, the Board adopted several amendments to the formatting and content of 

notices required by Regulation Z where the testing indicated those changes were helpful for 

consumers and effective in improving understanding of the terms of a credit card agreement. For 

example, the Board’s consumer testing indicated that providing a table at account opening that 

summarizes the key terms of an account was more effective than presenting those disclosures in 

a narrative format that might include dense prose and small print. The Board’s amendments to 

Regulation Z’s disclosure requirements generally become effective on July 1, 2010.50

Some major issuers of small business cards have indicated to Board staff that they intend 

to revise certain disclosures for their small business card accounts to conform with the new 

requirements of Regulation Z for consumer cards. However, other issuers have stated that they 

do not intend to modify their small business credit card disclosures for conformity with the new 

disclosure rules for consumer credit card accounts. 

Furthermore, Board staff understands that many small business card issuers do not 

comply with all aspects of certain disclosure provisions in TILA. For example, section 127(i) of 

TILA generally requires a card issuer to provide a consumer with a written notice of any increase 

in an annual percentage rate; however, section 127(i) also prohibits the card issuer from applying 

the increased rate to the account for 45 days after provision of the notice. Board staff 

understands that, while small business card issuers generally provide a written notice of rate 

increases, most do not provide 45 days advance notice. 

CURRENT PRACTICES REGARDING SUBSTANTIVE PROTECTIONS

 The Board understands that few business card issuers have elected to voluntarily comply 

with the substantive restrictions contained in TILA as amended by the Credit CARD Act. Many 

card issuers maintain that this distinction is appropriate because their small business credit card 

portfolios are separate and distinct from their consumer card portfolios, with different 

underwriting requirements, pricing, and risk factors. These issuers do not intend to apply the 

pricing restrictions of the Credit CARD Act to their small business credit cards because they 

consider small business credit and charge cards different products than consumer credit cards. In 

particular, these issuers have stated that applying restrictions on the ability to raise interest rates 

 

49 For more information on the Board’s consumer testing, see two reports submitted to the Board on December 15, 

2008, and available on the Board’s website: Design and Testing of Effective Truth in Lending Disclosures: 

Findings from Qualitative Consumer Research, 

www.federalreserve.gov/newsevents/press/bcreg/bcreg20081218a7.pdf; and Design and Testing of Effective Truth 

in Lending Disclosures: Findings from Experimental Study, 

www.federalreserve.gov/newsevents/press/bcreg/bcreg20081218a8.pdf. 

50 See 75 FR 7658 (Feb. 22, 2010). 
Report to the Congress on the Use of Credit Cards by Small Businesses 47

 

in order to account for changes in risk to small business cards would significantly reduce the 

number of accounts and the amount of credit availability for small business cards. These issuers 

also indicated that there could be unintended consequences such as lower credit limits. Recently, 

however, one major small business card issuer has announced a number of changes to its small 

business card accounts that mirror certain substantive provisions for consumer cards in the Credit 

CARD Act. These changes include: no rate increases on existing balances, 45 days’ advance 

notice of any rate changes for new transactions, no over-the-limit fees, and a minimum of 

25 days from statement closing to payment due date.51 Furthermore, the Board understands that 

other issuers are applying certain substantive provisions of the Credit CARD Act to small 

business card accounts. For example, one issuer is applying the Act’s requirement that amounts 

paid above the minimum generally be applied to the balance with the highest rate to its small 

business card accounts. Another small business card issuer is complying with the Act’s 

requirement that, when the rate on an existing balance is increased because the account is more 

than 60 days delinquent, the rate on that balance must be lowered to the preexisting rate if the 

issuer receives six consecutive timely minimum payments. In addition, the Board identified at 

least one card issuer that indicated it intends to consider the Act’s limitations on pricing terms in 

the context of its small business cards and to assess the costs of voluntarily complying with the 

Credit CARD Act. At this time, the Board cannot determine the extent to which small business 

card issuers may voluntarily comply with certain substantive provisions of the Credit CARD Act 

and believes that further monitoring of small business credit card practices would be required. 

ADEQUACY OF EXISTING DISCLOSURES AND SUBSTANTIVE PROTECTIONS—

COMPLAINT INFORMATION

 As noted above, TILA applies certain substantive protections to all credit cards. 

Specifically, the provisions prohibiting unsolicited issuance of credit cards (section 132) and 

limiting liability of cardholders for unauthorized use (section 133) apply to small business credit 

cards. The Board notes that other consumer protection statutes and regulations address business 

credit card activity, such as the Equal Credit Opportunity Act, 15 U.S.C. 1691 et seq., and 

section 5 of the Federal Trade Commission Act, 15 U.S.C. 45(a)(1), which prohibits unfair and 

deceptive acts and practices.52

 Although the Board does not have direct data regarding the adequacy of protections for 

small business cardholders against unfair and deceptive acts and practices, the volume and nature 

of credit card complaints raised by small businesses may provide some indication regarding 

potential areas of concern. The Board receives and responds to consumer inquiries and 

 

51 Bank of America (2010), “Bank of America Commits to Clarity for Small Business Customers,” press release, 

April 1, http://newsroom.bankofamerica.com/index.php?s=43&item=8669. 52 See, for example, “In the Matter of Advanta Bank Corp., Draper, Utah,” FDIC-08-259b, FDIC-08-403k, June 30, 

2009 (a cease and desist order prohibiting deceptive solicitations and rate increases on accounts in an unfair 

manner), available at Federal Deposit Insurance Corporation (2009), “FDIC Announces Settlement with Advanta 

Bank Corporation for Deceptive and Unfair Practices,” press release, July 1, 

www.fdic.gov/news/news/press/2009/pr09109.html. 
48 Board of Governors of the Federal Reserve System

complaints on a broad range of banking topics, including questions regarding credit cards.53 In 

preparing this report, the Board reviewed complaint information maintained on the Board’s 

consumer complaint system, CAESAR. Specifically, the Board reviewed complaints about 

credit cards received from businesses and from individual consumers.54 From 2007 through 

2009, 3,886 complaints concerning credit card activity were processed, of which 2 percent (69) 

were from businesses and 98 percent (3,817) were from consumers. These complaints are 

summarized in table 7. 

Complaint category

Percent of 

personal card 

complaints

Percent of business 

card complaints

Account opening 11.9% 11.6%

Account terms 23.5% 10.1%

Application 7.8% 8.7%

Billing 18.3% 21.7%

Collection 10.9% 2.9%

Disclosure 1.2% 1.5%

Fees 5.7% 11.6%

Fraud, forgery, embezzlement, 

 or theft 5.9% 17.4%

Other 14.7% 14.5%

Total 100.0% 100.0%

Number of complaints 3817 69

 Source: Complaint Analysis Evaluation System and Reports (CAESAR), 

Washington: Board of Governors of the Federal Reserve System. 

Table 7. Summary of personal card user and business card user

 complaints during 2007–09, from CAESAR complaint

 data files

 The relative scarcity of credit card complaints by small businesses may reflect a true lack 

of complaints on the part of small businesses. However, it is important to keep in mind that there 

are many more consumers and consumer credit card accounts from which consumer complaints 

may be generated, compared to small businesses and small business credit card accounts. 

Nevertheless, one large issuer of consumer and small business credit cards reported that, on a per 

account basis, they receive about 20 percent fewer small business credit card complaints 

compared to consumer card complaints. This issuer also indicated that the top categories of 

complaints from small businesses are: (1) changes in terms; (2) collections; and (3) billing 

 

53 In addition, the Board investigates complaints against state member banks and forwards complaints against other 

creditors and businesses to the appropriate enforcement agency. 54 Note that, when processing complaints, the Board generally does not distinguish between businesses based on size 

or number of employees. 
Report to the Congress on the Use of Credit Cards by Small Businesses 49

 

disputes. The top categories of complaints from the card issuer’s consumers are: (1) collections; 

(2) fees; and (3) changes in terms. 

 Based on the Board’s review of complaints the Board has received, the nature of the 

complaints raised by businesses and individual consumers have some similarities, as well as 

some notable differences.55 Billing and account-opening problems were among the top three 

sources of complaints for both consumers and businesses. Billing problems (including, among 

other things, payment errors or delays, errors in finance charge calculations, and problems with 

billing error resolution) accounted for roughly one-fifth of the complaints from each group, and 

account-opening problems (including delays in application decisions, unsolicited cards, and 

concerns about preapproved solicitations) comprised about one-eighth of complaints from each 

group. However, complaints involving account terms or fraud, forgery, embezzlement, or theft 

show notable differences between consumer and business complaints. Nearly one-fourth of 

consumer complaints, but only about one-tenth of business complaints, involved account terms. 

Complaints about fraud, forgery, embezzlement, and theft were the second most-common 

category for businesses (comprising about one-sixth of complaints) but were relatively 

infrequent for consumers. Other notable differences include complaints about collections 

(including, among other things, debt collection tactics, judgments, liens and garnishments), 

which ranked higher among consumers than among businesses, and complaints about fees 

(primarily late fees and over-the-limit fees), which ranked higher among businesses than among 

consumers. 

 

 

55 It is important to keep in mind that any statements made in this paragraph regarding complaints from businesses 

are based on an extremely small number of observations. 
50 Board of Governors of the Federal Reserve System

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51 

Conclusion and Recommendations 

The Board has considered whether small business credit cards may benefit from being 

subject to disclosure and substantive requirements similar to those in TILA (as amended by the 

Credit CARD Act). The Board notes that the Congress has excluded business credit cards from 

coverage under TILA, with the exception of the 1974 amendments providing business cards with 

certain protections against unsolicited issuance and unauthorized or fraudulent use. If the 

Congress were to consider establishing new disclosure requirements and substantive protections 

for small business credit cards, it should consider the similarities and differences between 

consumers and small businesses and the two different types of credit cards, as well as the 

differences between TILA’s disclosure requirements and its substantive protections.56 

COMPARISON OF CONSUMER AND SMALL BUSINESS CARDS

Consumer and small business cards are similar in many respects. As discussed earlier in 

the report, consumer credit cards and small business credit cards offer many similar features, 

such as rewards programs, balance transfer programs, and introductory rate promotions. The 

fees and pricing structures, as well as other terms such as grace periods, also appear to be similar 

across the two products. Several card issuers told Board staff that they house their small 

business credit card function within the same business unit as their consumer credit card function 

because of the similarities between the two products. 

However, significant differences exist between consumers and small businesses and the 

ways in which each group uses credit cards, leading to some important differences between 

consumer and small business credit card programs. First, small businesses and consumers differ 

markedly in their propensity to use credit cards for borrowing purposes (in other words, to carry 

a balance from month to month). Whereas only 18 percent of small businesses report borrowing 

each month on credit cards, about 46 percent of households report having credit card debt.57 

Second, small businesses tend to spend more in a given month than consumers and 

therefore small businesses demand relatively large credit lines. But granting larger lines 

increases card issuers’ risk exposure. At the same time assessing the risk of a small business at 

the time of application can be more difficult for credit card issuers than assessing the risk of a 

personal card applicant. When evaluating a consumer credit card application, issuers can utilize 

the three national consumer credit bureaus, which provide detailed information on consumers’ 

historical performance in repaying debts. Moreover, consumer credit scoring methods using 

these credit bureau data are well-developed. In contrast, small business credit reporting and 

scoring is not as well established and virtually non-existent for newer firms. Many small 

 

56 Of course, some of TILA’s credit card provisions would have little or no application in the context of small 

business cards, such as restrictions on the extension of credit cards to consumers under the age of 21. 

57 See Brian Bucks, Arthur Kennickell, Traci Mach, and Kevin Moore (2009), “Changes in U.S. Family Finances 

from 2004 to 2007: Evidence from the Survey of Consumer Finances,” Federal Reserve Bulletin, vol. 95 

(February), table 13. 
52 Board of Governors of the Federal Reserve System

business credit card applicants may have little or no credit history, making small business risk 

assessments difficult and imprecise. 

POTENTIAL EFFECTS OF APPLYING TILA’S DISCLOSURE REQUIREMENTS TO 

SMALL BUSINESS CARDS

As mentioned before, the disclosures required under TILA and Regulation Z (as amended 

effective July 1, 2010) for consumer credit card accounts have proven in testing to be effective in 

communicating key information to consumers regarding their accounts. Given the similarities 

between consumer and small business cards as noted above and earlier in this report, small 

business owners may benefit from many of the same disclosures. The Board believes that 

standardizing and improving disclosures for small business credit cards would promote the 

informed use of credit by enhancing small businesses’ ability to compare the cost of the credit 

card plans available to them. However, many small businesses may not benefit from TILA’s 

disclosure requirements to the same extent as consumers. For example, disclosures aimed at 

improving users’ understanding of the costs associated with making only the required minimum 

payment may be less beneficial for small businesses than for consumers because, as discussed 

above, most small businesses pay the balance in full each month and use credit cards for 

transaction and cash-flow management purposes. In addition, the Congress has previously stated 

that business owners may, on average, be in a better position than consumers to assess credit 

plans available to them.58 Moreover, many of the small businesses that borrow on credit cards 

use personal cards, which are subject to the disclosure requirements in TILA and Regulation Z.59 

Requiring TILA and Regulation Z disclosures for small business cards would impose 

costs related to revising marketing materials, application and solicitation disclosures, accountopening disclosures, and periodic statements. Such costs could be passed on to small businesses 

in the form of higher fees or interest rates. However, card issuers’ existing systems for providing 

TILA and Regulation Z disclosures for their consumer credit cards may mitigate some of the 

burden of providing such disclosures for small business cards. As noted earlier, some issuers 

have chosen to provide disclosures of key terms such as annual percentage rates, other charges, 

and penalty fees in a table that is similar to the required format for consumer credit cards. 

However, these issuers generally do not comply with related substantive requirements, such as 

the requirement in section 127(i) of TILA that card issuers provide 45 days advance notice 

before an increase in rate. 

For the reasons discussed above, applying TILA’s disclosure requirements to small 

business cards would produce benefits for small businesses, but the extent of those benefits is 

unclear. In addition, there would be costs associated with requiring all small business card 

issuers to provide TILA disclosures, although those costs may be limited because small business 

 

58 The Board, however, is not aware of any studies that compare the level of financial sophistication between 

consumers and small business owners. 

59 The Board notes, however, that credit cards used primarily for a “business, commercial or agricultural purpose” 

would generally not be covered by TILA and Regulation Z. 
Report to the Congress on the Use of Credit Cards by Small Businesses 53

 

card issuers may already provide some of these disclosures. As discussed below, however, to the 

extent that TILA’s disclosure provisions also contain related substantive requirements, 

application of those provisions could adversely affect the cost and availability of small business 

credit cards. Overall, it is not clear whether the benefits of applying TILA’s disclosure 

requirements to small business cards outweigh the costs. 

POTENTIAL EFFECTS OF APPLYING TILA’S SUBSTANTIVE PROVISIONS TO SMALL 

BUSINESS CARDS

Applying many of TILA’s substantive credit card protections to small business credit 

cards would protect small businesses from practices that the Congress and the Board have found 

to be harmful in the context of consumer credit cards. For example, application of TILA’s 

requirement that cut-off times for payments be no earlier than 5 p.m. on the payment due date 

would assist small businesses in making timely payments and avoiding penalty fees. 

Furthermore, TILA’s restrictions on applying increased rates to existing balances and on 

allocating payments in a manner that maximizes interest charges would assist small businesses 

that borrow on their credit cards by limiting or reducing interest charges. 

However, if the Congress were to consider the application of TILA’s substantive 

provisions to small business cards, it would be important to recognize the potential for adverse 

effects on the cost and availability of small business credit cards. For example, applying TILA’s 

restrictions on the ability of creditors to adjust interest rates on small business credit cards could 

have negative consequences for small businesses. As noted earlier, credit card issuers have more 

difficulty assessing the creditworthiness of small businesses than consumers. Therefore, the 

willingness of issuers to extend the relatively large credit card lines that small businesses require 

may depend importantly on issuers’ ability to adjust prices in the future, as they learn through 

experience about businesses’ ability and willingness to pay. Restricting the ability of card 

issuers to adjust interest rates may lead to higher initial interest rates, which would harm those 

firms that borrow on small business credit cards. In addition, if credit card issuers were to 

reduce credit limits in response to the imposition of TILA’s substantive requirements, even those 

businesses that use credit cards for transactions and cash management would be harmed. 

However, the Board notes that at least one major issuer of small business cards has chosen to 

voluntarily comply with TILA’s rate increase restrictions with respect to its small business card 

accounts. The Board also notes that the extent to which the Credit CARD Act’s substantive 

provisions have affected or will affect the cost and availability of consumer credit cards is not yet 

clear. 

Based on this review, it is not apparent, for the reasons discussed above, that the potential 

benefits of applying substantive restrictions similar to those in TILA to small business cards 

outweigh the potential risk of increased cost and reduced credit card availability for small 

businesses. 

 
54 Board of Governors of the Federal Reserve System

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55 

Appendix 

All small 

businesses

Non-employer 

firms

Employer firms 

with 50 or fewer 

employees

Employer firms 

with 51 to 499 

employees

Used credit card 77.3% 69.5% 79.2% 82.3%

 Used business credit card 48.1% 31.9% 51.9% 66.4%

 Used personal credit card 46.7% 48.9% 46.5% 33.8%

Borrowed on credit card 22.6% 21.2% 23.6% 5.3%

Borrowed on credit card 

 (percent of card users) 29.3% 30.5% 29.7% 6.5%

Borrowed on business credit card 14.1% 12.4% 14.9% 3.6%

Borrowed on business credit card 

 (percent of business card users) 29.3% 38.7% 28.7% 5.4%

Borrowed on personal credit card 12.7% 11.6% 13.3% 2.4%

Borrowed on personal credit card 

 (percent of personal card users) 27.1% 23.7% 28.6% 7.2%

Memo: Percent of population of firms 

with fewer than 500 employees 100.0% 20.5% 77.1% 2.4%

 1. Borrowing on credit cards means carrying balances after monthly payments are made.

Appendix Table A.1. Small business credit card use and borrowing, by firm employment status,

 20031

Percent of population unless otherwise noted

 Source: 2003 Survey of Small Business Finances, tabulated by Board staff. Small businesses consist of all firms with

fewer than 500 employees.