Top three credit-card questions for small businesses
When evaluating credit card relationships and decisions, there are many items for small business owners to consider. One of the most important is the card-issuer relationship.
This has become particularly important in the past 24 months. Financial institutions and credit card companies have experienced unprecedented challenges and difficulties both within their industries and the economy as a whole. Small businesses are also dealing with the results of a strained credit and economic environment.
As such, small business owners must evaluate a myriad of items to help identify the best partner for their credit card needs. Determining which institution can offer stability, safety, customization and specific small business programs are some of the key things to consider. Here are three questions to help address these areas.
1. What are more stable: bank-issued credit cards or non-bank issued credit cards?
Historical data indicates bank-issued credit cards tend to be the more prudent choice when weighing these two options. The primary reason for this stability is diversification. Most banks or financial institutions will have multiple lines of business that generate company revenue, which protects not only themselves, but also their clients.
Credit card companies, on the other hand, generally have only one source of revenue - the income generated from their credit cards. Because of this singular focus, their business model is exposed to more volatility which adds a higher level of risk for their card holders.
One example of this occurred earlier this year. A major credit card issuer with focus on small business went bankrupt and was declared insolvent. The issuer's assets were handed over to a trustee and more than one million client credit lines were frozen and then completely discontinued a few days later. This was a huge disruption to those small business owners who were using their credit cards to make miscellaneous purchases, acquire inventory and manage day-to-day company needs.
2. Which banking model is better suited to small business owners: regional or national?
While banks of all sizes have the capabilities to handle small business accounts, there is a distinct difference in the way these accounts are serviced. In most cases, regional banks outperform national banks with diversified offerings, customization capabilities and, most importantly, relationships.
First, while most banks tout their expertise in the small business environment, a quick way to distinguish an institution's expertise is to ask, "What types of products have been specifically developed for small business clients?" Their response, or lack thereof, will be a clear indicator of how they handle their accounts. Many times, the regional banks will have more programs for this audience because of their existing clientele.
Secondly, customization is critical for most small business clients as they have unique circumstances and needs. This can include card usage, payment arrangements and enhancements.
For example, a business owner might want to delegate purchasing amongst employees and staff, but each person may need a different level of access. An owner of a small trucking company may want to restrict drivers' card access to gas-only purchases. On the other hand, the owner's sales manager may travel so they will have completely different vendor access and cash limit levels. Regional banks tend to have greater capability and latitude in customizing cards.
Thirdly, the small business owner and credit card issuer relationship is the most important factor in the equation. Generally, small business owners will select their banking relationship based on convenience, location and ease of product integration. As such, it may make sense for the small business owner to simply add this service to their existing relationship.
Having one bank that manages most or all of the business' services can be extremely beneficial by streamlining internal processes, simplifying audits and providing one face-to-face contact
3. How can a small business owner qualify a bank's credentials and reputation?
There are several Web sites small business owners can use for institution research. Bankrate.com is an excellent resource where anyone can review bank profiles and business history to evaluate its safety and soundness.
References are also an excellent qualifier. Talking with other small business owners about their experiences is an invaluable way to gather information on arrangements, service and account satisfaction.
Finally, conducting interviews with three to five organizations will provide valuable insight. This allows the business owner to compare business styles, interpersonal communication and overall comfort levels.
Securing the right credit card issuer relationship is a critical and often time-consuming task for small business owners. Ensuring specific standards are addressed for stability, customization and account management is paramount. However, once completed, this relationship can be an instrumental component in the business' operations and day-to-day success.