Can Credit Cards help Small Business?

According to report in the Sydney Morning Herald today, Australians owe $45 billion on credit cards and are paying more than five billion dollars a year in interest.  Where does this kind of ‘debt trap’ leave small business?

Accessing affordable funding is an ongoing issue for small business.  The RBA has previously reported that due to a lack of funding options entrepreneurs and small businesses owners often resort to personal credit cards to pay for day-to-day business costs. This can result in a toxic debt trap, choking future growth.

An ASIC review released today finds that 18.5% of all credit card holders exhibit at least one ‘problematic debt indicator’ such as being in arrears or being unable to clear the debt.  Plus as so many of us know, once your credit card reaches its limit, it’s often very difficult to get the balance back down to manageable level. According to the report, only a handful of credit providers are taking proactive steps to address persistent debt, low repayments or poorly suited credit cards, meaning the problem will only get worse.

ASIC proposes the establishment of responsible lending assessments for credit cards based on whether the consumer can afford to repay the credit limit within three years.

The new reform would apply to both new and existing credit card contracts from January 1, 2019.  ASIC will make a final decision about the proposed three-year period following an industry consultation process, which ends on 31 July this year.

One of the big problems with credit card finance is that, should the borrower default, they will usually not be unable to secure most types of finance for five years; or seven in the case of bankruptcy.  Credit cards can seem like a very easy solution in times of crisis, but what is  the ongoing cost for small business owners?   We believe small business need better access to more flexible funding solutions that don’t just leave them with more debt.  Talk to Apricity today about flexible cash flow solutions.