The recently-approved Credit Cardholders’ Bill of Rights Act of 2009 looks to provide consumers with some measure of protection against rising interest rates and lowered credit limits. Under the Act, credit card companies must provide plenty of advanced notice to consumers about payment due dates and permit debtors who make mistakes (like sending in late payments) to have a second chance at re-establishing their creditworthiness.

But if you’re a small business owner who relies on credit cards to keep operations afloat, you may notice a glaring omission in the Act: you’re not included! While some politicians are pushing for the Act to extend those same consumer rights to small businesses, they haven’t succeeded yet, and that leaves business owners wondering if they’ll still be able to depend on their laminated ace in the hole.

The impact of the credit crunch to small businesses

The Credit Union Times recently cited data from The National Small Business Association showing 59% of small businesses relied heavily on their credit cards through April of this year (vs. 44% in all of 2008). The information also indicated how the economy’s ongoing struggles have taken its toll on small business finances as 12% of business owners defaulted on their card obligations – 20% higher than consumer defaults. This has forced creditors to tighten lending terms with more restrictions, higher interest rates, and lower credit limits.

Worse for business owners, the credit card crunch has cost them one of their top resources for credit when Advanta Corporation cancelled more than one million small business credit card accounts. And HSBC, a longtime provider of retail credit lines for big players like and Best Buy and OfficeMax (which is currently without a backer for their own store credit card!) may exit the U.S. retail sector entirely within 18 months.

Was this the right move for credit card providers?

Some will argue that these changes aren’t necessarily a bad thing. While banks are reducing or altogether eliminating credit lines for small businesses, this is a logical step after they gave away credit all too easily for years. They need to get their losses under control and reduce their exposure to bad debt.

Unlike when a consumer defaults on a personal credit card account, a business owner’s company credit card information doesn’t end up on his credit reports. If a business has a credit card account and that company goes under, the owner could simply walk away and leave the bank empty-handed.

Keeping that in mind, it’s certainly understandable that banks want to protect themselves. But the new terms are doing more to hurt small businesses than help since they seem to punish those responsible business owners who use their credit appropriately and rely on that funding source to help manage their cash flow.

Taking steps to protect your small business credit options

It seems American Express is stepping in to provide some hope for small businesses. They recently worked out a deal with Advanta Corp to extend invitations for AmEx small business credit cards impacted by the Advanta cancellations.

In addition, American Express OPEN, the company’s online forum for the top small business credit card issuer in the country, provides free credit management tips and advice for both businesses and consumers. Christa Avampato of the New York Business Strategies Examiner highlights OPEN’s best tips along with her suggestions for keeping your credit in tip-top shape.

Other resources for keeping your small business borrowing options open:

• If you’re still looking for a small business credit card, a comparison shopping site like creditcards.com allows you filter your options by card quality, bank, and other parameters.
• While the rules of small business credit cards have certainly changed since Small Business Information introduced six steps to effective credit card management, these helpful tips will keep your business on the right path to strong credit and reduce the chances that you’ll be hurt by the new laws.
• If you still have difficulty getting (or maintaining) company credit card accounts, you do have a few alternatives. These options may cost more up front, but they’re very fast which saves you from wading through the considerable red tape of other lending sources:
  • Factoring allows you to sell your outstanding accounts receivables to another company for the value of the receivables minus their fee (typically 3% to 5% depending on the dollar value of your receivables and your company’s risk level)
  • If you accept credit cards for payment, a business cash advance will provide you with up front money in exchange for a percentage of your future transactions. The costs range from 20% to 45% depending on how much cash you’ll receive, what the provider charges, and the percentage that’s withheld from your daily credit card transactions.

How have the new credit card terms impacted your small business? Share your stories and suggestions below.

Update: Shortly after writing this blog post, I checked my mailbox to find a terms of service change notice from Chase Bank sitting in my mailbox. Apparently, they’re providing me with two less-than-palatable options:

1. Raise my APR for purchases and existing balances from 8.99% to 12.99%
2. Maintain my 8.99% APR, but my account will be shut down with a note on my credit report reading “customer requested to close out the account.”

Since option 2 will certainly harm my solid credit rating, I’ll be forced to go with the lesser of two evils and pay the premium on past and future purchases.

I feel for you small business owners. I really do.