The Fed’s quarterly survey of bank loan officers (PDF here) is out today. No surprise that credit got tighter for businesses of all sizes over the prior three months (the surveys were filled out in the first two weeks of October).
But this time the Fed threw in an extra question about credit card borrowing that should get the attention of small business owners:
About 20 percent of domestic banks, on net, reported having reduced credit limits on existing credit card accounts to prime borrowers…. About 95 percent of banks that had reduced limits cited a less favorable or more uncertain economic outlook and reduced tolerance for risk as reasons for the action.
Got that? Borrowers with good credit are seeing their credit card lines reduced. (A larger share of banks, 60 percent, also lowered credit card limits for non-prime borrowers.) Banks cited economic uncertainty and less appetite for risk. They didn’t rate their own capital or liquidity positions as big factors in the pullback. Which might strike you as odd if you look at how much taxpayer money we just committed to recapitalize the banks.
As Nick noted this morning, credit cards are a more common financing source for small businesses than loans from friends and family. So if you use credit cards to fund your business or manage cash flow, and you’re in the habit of borrowing near the limit, watch out. A prime credit score isn’t enough to keep your line from being reduced. Now is a good time to line up more credit than you expect to need.
(More on pages 7, 45-48 of the Fed survey PDF if you’re interested.)