Committee Examines Role of Credit Cards in the Financing of Small Firms
"Without capital, small businesses can’t grow, and the American economy loses out on their important contributions. In the current economic climate, however, small firms are finding it difficult to secure affordable financing. Today, witnesses told the House Committee on Small Business that as traditional sources of capital diminish—including SBA loans—their credit card use is on the rise.

“When a small firm can’t buy equipment, or has to lay off its workers, our entire economy suffers,” said Chairwoman Nydia M. Velázquez. “These businesses are the principal drivers of our economic growth, but without capital they can’t lead us back to recovery.”

In a recent Federal Reserve survey of senior loan officers, 65% of respondents reported tightening lending standards in the first quarter of 2008. The impact of this move is compounded by federal loan programs—such as the SBA’s 7(a) initiative—which are increasing fees and making it more difficult for entrepreneurs to get financing. Witnesses at today’s hearing noted that because SBA’s programs are falling far short of their intended purpose, they are having to turn elsewhere to meet their capital needs. This has contributed to small firms’ increased use of credit cards—up 14% in the past five years alone."