Published: Monday, Dec. 29, 2008

Updated: Monday, Dec. 29, 2008

Survey: Businesses relying on plastic

BRADENTON — Gaetano Cannata has operated the Ortygia Restaurant in Village of the Arts for about a year and four months.

It’s been a tough time for all businesses, particularly restaurants, Cannata acknowledges.

But Cannata has steadfastly refused to rely on credit cards to keep his business afloat.

“I’m very careful about running up large credit card bills,” says Cannata, who makes a mean artichoke tart at the Sicilian-themed restaurant. “I’m trying to keep my business afloat without borrowing any money. It’s not easy. It means I’m here 16 hours a day sometimes.”

National data, however, show Cannata is increasingly in the minority.

As bank lending tightens and the economy worsens, 54 percent of small businesses have some type of business loan and are using credit cards as one of their primary sources of leveraging those loans, according to the 2008 Small and Mid-Sized Business Survey from the National Small Business Association.

Additionally, 44 percent of small businesses have used a credit card in the past year to help finance their capital needs. That figure was only 16 percent in 1993.

For those small businesses using credit cards to help fund their operations, 12 percent carry balances of more than $25,000. Just 29 percent pay off their credit card bills each month, according to the report.

Making matters worse, 57 percent of small business owners say their credit card terms have gotten worse this year.

Having been in business for less than two years, David Underwood has had to rely heavily on credit cards while getting his Midnight Sun Aquaculture business established.

The business, which UnderThe business, which Underwood is in the process of moving from its former location on 27th Street East in Brdenton, grows sea life and manufactures filtration equipment for aquariums.

Because the business is relatively new, it has been difficult to obtain a tradition line of credit, Underwood says. For that reason, he must rely on credit cards.

But with banks trying to walk a straighter line in terms of lending in the wake of the subprime mortgage fallout, Underwood says his available credit has started to drop.

“Almost across the board, we’ve seen credit lines drop,” Underwood says. “It affects some of our purchasing power, of course. It certainly makes it a little more difficult. We’ve always used a credit card pretty heavily for our operations.”

Though her agency doesn’t specifically track credit card use among small businesses, there is evidence to suggest that decreased lending has resulted in more businesses charging their inventories and covering operating costs with plastic, says Jonel Hein, area manager in Tampa with the Small Business Administration.

“What we’re finding is the lenders are really cherry-picking credit right now,” Hein says. “If there’s any glitch at all, it becomes a risky situation for the lender and they don’t want to do it.”

In the summer of last year, Marilyn Landis, chair of the National Small Business Association and owner of a small business consulting firm, testified before Congress about the perils of relying on credit cards to keep one’s business going.

Volatile interest rates and floating due dates that increase the potential of late payments were unfairly impacting small business owners, Landis said in her testimony.

“The billions of dollars generated from outlandish retroactive interest rate hikes, the escalating imposition of undisclosed fees, and unilateral and unforeseen interest-rate increases is money diverted from economic development,” Landis told Congress.

The Federal Reserve recently unveiled reforms proposed to go into effect in 2010 that would give consumers protections from usurious credit card terms.

Among the proposals are preventing credit card companies from raising interest rates on existing balances, making them give more advance notice of pending rate increases and lengthening the amount of time a consumer has to pay on his or her bill from the standard 14 days to at least three weeks.

For the time being at least, Cannata doesn’t plan to worry about billing cycles and interest rates. “I might have to some day, but I was brought up not to live that way, so I don’t use my credit card as much,” Cannata says. “Now, you call me a year from now, I don’t know what I’ll tell you.”