Small firms struggle to pay credit card debt
When Andrew Uribe started building his salsa-making venture, he turned to plastic for start-up money.
But the business didn't take off as quickly as he had hoped. Now the entrepreneur in Ellicott City, Md., has three credit cards that carry a combined $30,000, is behind on his bank loan and has moved out of the industrial space he had leased.
Working out of a commercial space in Baltimore's Lexington Market that friends let him use on weekends, he has the capacity to pack only 1,600 jars of his Emy's Salsa Aji a month instead of 14,000.
Uribe's minimum credit card payments run $325 a month -- about 15% of his total monthly expenses -- which he says mainly cover just his interest payments.
"It's horrible because any small profits that I am making, I'm using them to pay the credit cards," Uribe said during a trip to New York, where he was meeting with potential investors. "It's hurry up and pay, and swim or sink."
Entrepreneurs have long used credit cards as quick financing. But with the sputtering economy, tightening credit market and cards' notoriously changing terms, more small-business owners are struggling to pay their debt -- accumulated on personal as well as small-business credit cards.
As credit standards loosened at the beginning of the decade, banks expanded their small-business credit card offerings. Compared with the consumer credit card market, the small-business market was virtually untapped, and potentially lucrative, because business credit card use tends to be high volume and paid in full at the end of the month.
The result was a boom: Small businesses will charge 2 1/2 times more this year than when they ran up about $140 billion in 2002, according to estimates from TowerGroup, a financial service research and advisory firm.
But as the economy slowed, so did payments. Major small-business credit card issuers reported a sharp increase in late payments and bad debt over the last year. And the debt can last long after the business has failed.
Two years after starting Music America Records in Los Angeles, Jeremy Riney -- still a college student -- knew the record label was going under. He had financed his business with personal credit cards and owed about $100,000. When Riney missed a payment on one, his interest rates jumped from zero to about 30%.
"The business was going nowhere, so the only thing I could fund the business with was more credit cards," Riney said. "I just started panicking."
