Small business credit card lender to close all accounts

[Dr.Phool]

Source: Cleveland.com, AP

Small business credit card lender to close all accounts
by Associated Press
Tuesday May 12, 2009, 4:44 PM

NEW YORK -- Advanta Corp., a credit card lender to nearly 1 million small businesses, will close all its cardholders' accounts next month in a last-ditch effort stem losses.

Analysts said the move adds to already growing concerns that the company might not be able to survive. And while other credit card issuers won't likely fall into Advanta's situation, analysts said, worries remain that they might decide to cut credit lines further on small businesses.

"Advanta's problems call into question the business model at the end of the day," said Keefe, Bruyette & Woods card industry analyst Sameer Gokhale. "Are these really small business cards, or just consumer cards with really high credit lines?"

As of late March, Advanta wrote off about a fifth of its credit card debt as unrecoverable.

In anticipation of losses escalating further, Advanta said late Monday that on June 10 it will shut down all accounts. June 10 is when Advanta will offer to pay off investors who hold securities back by its cards -- a type of payout known as an "early amortization" of a trust. This way, Advanta said, the company can "maximize its capital and its liquidity measures."

(more)

Read more: http://www.cleveland.com/business/index.ssf/2009/05/small_business_credit_card_len.html#more

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I'm really surprised they stayed in business this long. I've got a corporate Mastercard with them. My company is "Murder Inc.".

Really, no shit.

I've had the card for 12 or 13 years. Back in '95, when I bought my first computer, a friend came over to help me set it up. When we were setting up Windows, he typed in "Murder Inc" for the company name. After a while, I started getting mail for this company. Then a credit card solicitation from Advanta. I wondered if they would really send out a card with that name on it. I filled out the application. I put down "zero" in the sales and earnings questions.

Sure enough, they sent me the card. The first place I used it was at a casino in Atlantic City. They've raised my credit limit over the years, but my balance is zero.

And you wonder how dogs and cats get credit cards.

I wonder now, which criminal enterprise bank will take over the "Murder Inc." account.

[Oregone]

1. guess its time to use my air miles

[merwin]

5. Once your air miles are applied to your account, Advanta's status doesn't matter.

Unless there was some clause in the contract that says otherwise.

But I will say that it's a great time to take a vacation, so by all means cash in those air miles! :)

[Dr.Phool]

2. More info

Advanta, With 20% Uncollectable Debt, to Shut Off Lending

Advante, the 12th biggest credit card issuer, is ceasing all new lending as of June 10.

This is yet another example of how the credit contraction is hitting small businesses. Since the credit card industry is highly concentrated, Advanta is pretty small fry, with only $5 billion in outstanding credit. But that was devoted entirely to the small business market.

We've noted earlier that credit cards are an important source of funding to small enterprises. Many are not large enough to qualify for a normal bank business line of credit. And businesses often have short term cash flow need, particularly if they have an employee or two. If a customer payment comes in a late, using a credit card to stretch short term expenses can be very valuable.

We noted earlier that American Express had shut down its small business credit card area in December and January, which included a small business line of credit product.

Advanta contends that 90% of its customers have access to other credit. That begs the question of whether it is sufficient. But even granting that it is, that leaves 10%, of companies that colllectively had access to $500 million of credit stranded. If you assume $20,000 per company, that's 25,000 businesses at risk. Advanta puts its number of customers at a million, so the number affected adversely could be 100,000.

Now given Advanta's rather impressive losses: 20% uncollectable as of March 31. Note that this isn't a matter of the corporation being broke but the owner still having dough; small business credit cards are personally guaranteed by the business owner.

(more)

http://www.nakedcapitalism.com/2009/05/advanta-to-shut-off-lending.html

[targetpractice]

3. Then why do they need to stay in business?

If they are not lending to small businesses... What is their value proposition?

[EFerrari]

4. LOL

:rofl: