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Credit Card Lending Shifts Strategies Amid COVID-19

In the past few months since the global pandemic swept the nation, consumers and businesses alike have been met with unprecedented challenges. Many businesses have closed their doors, never to reopen. Thousands of other companies continue on, but are unsure of where they will find the extra cash they need to keep going. Meanwhile, countless citizens are currently unemployed and wondering when things will get back “to normal”. This has all spurred changes in the credit card lending sector.

The beginning of this month, several unique strategies were rolled out in U.S. credit cards:

  1. First, Capital One responded to the unstable economy with the traditional approach of harnessing credit lines.
  2. Second, Chase launched a new Mastercard product, a move that is considered unusual for the Visa-centric issuer.
  3. Third, American Express decided to extend their installment option to struggling small businesses.

Thus far, it has been difficult for issuers to determine who is working and who is not, which has affected current relief programs. Many financial institutions – like American Banker – are reining in credit lines trying their best to reduce exposure. In fact, banks have cut overall limits for subprime cardholders by 19%.

Placing the Bet on Small Businesses

On the other hand, some issuers are looking at these unprecedented times as an opportunity to bet on small business owners. Chase just launched its Freedom Flex card on Sept. 15 – its first Mastercard-branded card in five years. This no-fee credit card allows customers to earn 5% on travel, 3% on dining purchases, 3% on drug store purchases and 1% unlimited cash back on other purchases.

Likewise, American Express Co. recently gave details on its position during these times by breaking card traditions and letting small businesses borrow more on their cards. Long-known for charge cards that require business customers to pay in full each month, AmEx is shaking things up. Now, business cardholders are permitted to pay of purchases over more extended periods, with interest.

Where to Find the Lending Solutions

As small businesses face unique challenges with limited cash flow, lenders are scrambling to offer creative lending solutions. The problem is, not all options are created equal. The financing solution you choose now will determine the financial health of your business down the road. The key is to make sure you choose the option that best suits your business’ current and long-term needs.

One fast way to improve cash flow is to partner with a high risk provider and secure merchant funding. Some of the top benefits of this alternative financing solution include:

  • Fast approval – Since most merchant financing lenders do not look at your business or personal credit history, the qualification process is simple and hassle-free. Funds are automatically withdrawn from your credit processing system. So, the top concern for the lender is whether you have a high volume of credit card transactions.
  • Easy repayment – Missing a payment is not a problem because the funds are withdrawn before your money hits your account – no need to worry about late fees. Even better, repayment is a daily percentage of your business performance. When times are slow, you pay back less. When business is good, you pay back more.
  • Low cost – Thanks to auto repayment, lenders are not as concerned with whether or not you will payback the loan. This means lower interest for you, and lower overall cost of capital.

Bottom line: make sure the financing option you choose is right for your business type and industry. While times are tough, it’s important to still take your time in seeking a trustworthy and reputable financing provider.