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This post is the final part of a four-part series on credit card reform.

In the three previous posts, I discussed the possible affect of the credit card reform bill that was passed by the US Senate earlier this month. The bottom line for consumers and small businesses is that this new legislation will probably not have the desired affect its supporters had hoped for, and it may even lead to some negative consequences, such as smaller credit limits, higher fees, and less credit availability.

In response, many consumers and small businesses in search of credit will turn to credit card alternatives. Some will make this switch by choice, while others will do so because they have no choice.

Whichever category you or your small business falls into, you might as well familiarize yourself with some of the more popular credit card replacement options:

Credit Unions

Credit unions are basically small banks that are cooperatively owned by their members and run by the community at large. These local banks are generally more personable and they have the added benefit of limited interest charges as well as a vested interest in supporting the local community. They are a good place to turn for small business loans as well as personal lines of credit.

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Debit Cards.

Debit cards work just like credit cards and are accepted everywhere that credit cards are accepted. The only difference is that the money that you spend is immediately deducted from your bank account. Keep in mind, however, that if your card is lost or stolen, you risk losing the balance of money in your account.

Prepaid Credit Cards.

Like debit cards, prepaid credit cards work just like credit cards and are accepted everywhere that credit cards are accepted, but you have to put money into the card before you can use it. The major benefits to this method include more control over how much money is being spent and greater safety should the card be lost or stolen. The major drawback is that many prepaid cards charge a monthly fee in addition to a fee on transactions.

Bank Overdrafts.

A bank overdraft is a line of credit, much like a credit card, except it is directly connected to your bank account. A bank overdraft allows the account holder to overdraw the account up until a predetermined limit that is set by the bank. The outstanding balance may then be carried over from month to month, but it will accrue interest charges.

Charge Cards.

Charge cards work just like credit cards except the monthly balance made be paid in full each month. Unlike credit cards, charge cards do not have a monthly spending limit, and you can make an unlimited number of purchases. Many charge cards come with a yearly fee, and impose hefty penalties when the balance is not fully paid.

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This post is the third of a four-part series on credit card reform.

The consumer reaction to the credit reform bill has been taking the spotlight ever since the legislation was approved by the US Senate two weeks ago. Though the changes proposed in the new legislation will have some effect on consumer credit card usage, the under-emphasized fact is that smaller businesses (particularly those in retail) stand to bear the brunt of the fallout.

What makes small businesses special is that they are involved with credit cards both as a source of quick financing and as a way to extend credit and convenience to customers.

There has already been movement among the major business credit card issuers to drop their small business customers, or at the very least raise interest rates while reducing credit limits. My guess is that after the legislation goes into effect small businesses with good credit will see their rates continue to rise (albeit with greater disclosure) while their credit limits will continue to shrink.

Many of the “riskier” small businesses- those with bad credit and poor sales, or even those who have missed a couple of payments (how many small businesses out there these days don’t fit into this category?)- will have their accounts closed. In other words, they’ll just be dumped.

On the other side, the credit reform bill may result in a reduction in consumer spending by encouraging credit card holders to use cash or other credit card alternatives. Moreover, we can probably expect an increase in fees charged to retailers for processing credit card transactions.

None of this is good news for small businesses.

So what can small businesses do in response to the new credit card legislation? For one, small businesses must pay attention to any changes in credit card fee structures and incentives programs and then tailor their own credit terms and business practices around them. They should also look for alternative sources of quick financing, such as factoring receivables or turning to a community bank. It may take a little work, but it could shield a business from all the fallout.

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This post is the second of a four-part series on credit card reform.

Two weeks ago the US Senate approved a credit reform bill designed to protect customers overburdened by their financial obligations and subsequent poor credit ratings. But even after the bill was pushed through the Senate, one glaring question still remains: Will the credit reform bill help the nation’s current financial mess, or will it only make things worse?

I’ll put my bets on the latter.

While the more genteel voices of protest have been claiming that the credit card companies are engaged in a slew of unethical (or at least questionable) business practices, many unabashedly accuse the credit card industry with outright loan sharking, predatory lending, and deceptive advertising.

Though some of the practices in question may change as a result of the new credit reform legislation, the fact that the Senate failed to place a cap on interest rates is definitely a big win for the credit card companies, and I have no doubt that they will take advantage of it.

Moreover, bank officials and credit industry pundits have been threatening to make up for lost income generated by riskier borrowers by going after the people with good credit (to the tune of reinstating annual fees, curtailing rewards programs and charging interest immediately on purchases). My feeling, however, is that most of it will just turn out to be a lot of hot air.

The credit card industry is in the business of making money, and it will stay that way. What we can expect instead is a transformation. Though it may be a little harder to get a new credit card once the new legislation goes into effect and it may even be a little less convenient or a bit more expensive for those who have it, the credit card companies will eventually devise other methods for incentives and “rewards” programs that will encourage people to keep spending.

In short, my guess is that the credit reform bill will result in a great divide. Those with sterling credit will just use their cards less, which may result in less consumer spending. On the other hand, those with moderate to poor credit will still be stuck in the same debt mud- just under slightly different terms and conditions.

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This post is the first of a four-part series on credit card reform. The next three posts in this series will discuss the expected effects of the credit reform bill in general as well as how credit reform may effect small businesses in particular. The series will then end off with some credit card alternatives.

Two weeks ago the US Senate approved a credit reform bill designed to add a level of regulation and control to the credit card industry which many proclaim is aimed at trapping its customers in a cycle of debt with unfair business practices and deceptive credit card offers. Here is a summary of the major changes approved by the Senate:

• Interest rates cannot be raised during the first year of an account, and promotional rates must be in force for at least six months. After this time, should the credit card company choose to increase the interest rates, then customers must be notified about these changes at least 45 days in advance.

• A customer must be over 60 days late on payments before the interest rate can be raised on the remaining balance. If the customer then pays the minimum payment on time for six consecutive months, then the rate must return to its previous level.

• Bills can be paid online or over the phone without generating processing fees.

• Over-limit fees are prohibited unless cardholders are told that the purchase will put them over their limit and they authorize it to go through anyway.

• If your card has more than one interest rate on balances, for example one for purchases and one for transfers, then partial payments must be applied to the highest interest rate first.

• Gift cards and gift certificates cannot expire within five years of activation, and issuers are banned from charging dormancy or inactivity fees on gift cards for unused amounts.

• Credit card statements must be mailed out 21 days before the payment is due.

• If the credit card company gets a payment by 5 pm on the due date, then it is considered “on time.” Also, no more late fees if the due date is a Sunday or a holiday and the payment does not arrive until a day later.

• Individuals under 21 will need an adult co-signer on their cards unless they can prove that they have the means to make payments on their own. They must also get permission from parents or guardians to increase credit limits.

• Credit card agreements will have to be posted on the internet

And what is missing…

The Senate rejected a proposal to cap credit card interest rates at 15%. Many claim that this measure was needed to “put real teeth into an otherwise solid bill.”

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It used to be that credit insurance was exclusive to the large companies that could afford to pay the high premiums in exchange for a bit of financial peace of mind. Not any more. In response to the economic slowdown and an across-the-board reduction in consumer spending, now even small and mid-sized businesses are considering this risk management tool.

Credit insurance, also known as business credit insurance, protects the insured business from customers who pay late on their invoices or who become insolvent. Though insured businesses cannot get money up front, as in the cases of factoring or invoice discounting, credit insurance provides a safety net that protects these businesses from the financial suffering incurred due to a debtor’s protracted default, insolvency or bankruptcy.

Generally, companies that accrue a few million dollars in yearly revenue can get credit insurance. Small and mid-sized business owners should keep in mind, however, that premiums vary greatly depending on the size of a business and its industry as well as on the credit terms that the business extends to its customers (i.e. are invoices payable within 30 days versus 90 days).

Even so, credit insurance may be worth the cost for smaller businesses in exchange for the peace of mind it brings in these financially turbulent times.

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With all the talk about the recession, job insecurity and lay offs, here are a few business jokes to lighten things up a bit.

The Flowers

A new business was opening and one of the owner”s friends wanted to send flowers for the occasion. They arrived at the new business site and the owner read the card; it said “Rest in Peace”. The owner was angry and called the florist to complain. After he had told the florist of the obvious mistake and how angry he was, the florist said. “Sir, I”m really sorry for the mistake, but rather than getting angry you should imagine this: somewhere there is a funeral taking place today, and they have flowers with a note saying, “Congratulations on your new location!”

Your First Worry

Fresh out of business school, the young man answered a want ad for an accountant. Now he was being interviewed by a very nervous man who ran a small business that he had started himself.”I need someone with an accounting degree,” the man said. “But mainly, I”m looking for someone to do my worrying for me.””Excuse me?” the accountant said.”I worry about a lot of things,” the man said. “But I don’t want to have to worry about money. Your job will be to take all the money worries off my back.” “I see,” the accountant said. “And how much does the job pay?” “I’ll start you at eighty thousand.””Eighty thousand dollars!” the accountant exclaimed. “How can such a small business afford a sum like that? “That,” the owner said, “is your first worry.”

Just Kidding

Reaching the end of a job interview, the human resources person asked a young engineer fresh out of MIT, “And what starting salary were you looking for? “The engineer said, “In the neighborhood of $125,000 a year, depending on the benefits package. “The interviewer said, “Well, what would you say to a package of 5-weeks vacation, 14 paid holidays, full medical and dental, company matching retirement fund to 50% of salary, and a company car leased every 2 years – say, a red Corvette? “The Engineer sat up straight and said, “Wow! Are you kidding? “And the interviewer replied, “Yeah, but you started it.”

The Order

A customer sent an order to a distributor for a large amount of goods totaling a great deal of money.The distributor noticed that the previous bill hadn’t been paid. The collections manager left a voice-mail for them saying, “We can’t ship your new order until you pay for the last one. “The next day the collections manager received a collect phone call, “Please cancel the order. We can ‘t wait that long. ”

A Professional Quiz

The following short quiz consists of 4 questions and will tell you whether you are qualified to be a “professional.” Scroll down for each answer. The questions are NOT that difficult.

1. How do you put a giraffe into a refrigerator?

The correct answer is: Open the refrigerator put in the giraffe and close the door. This question tests whether you tend to do simple things in an overly complicated way.

2. How do you put an elephant into a refrigerator?

Open the refrigerator put in the elephant and close the refrigerator. Wrong Answer!

Correct Answer: Open the refrigerator, take out the giraffe, put in the elephant and close the door. This tests your ability to think through the repercussions of your previous actions.

3. The Lion King is hosting an animal conference. All the animals attend except one. Which animal does not attend?

Correct Answer: The Elephant. The elephant is in the refrigerator. This tests your memory.

OK, even if you did not answer the first three questions correctly, you still have one more chance to show your true abilities.

4. There is a river you must cross. But it is inhabited by crocodiles. How do
you manage it?

Correct Answer: You swim across. All the crocodiles are attending the Animal Meeting. This tests whether you learn quickly from your mistakes.

Employee Want Ad Translations

Energetic self-starter: You’ll be working on commission.

Entry level position: We will pay you the lowest wages allowed by law.

Experience required: We do not know the first thing about any of this.

Fast learner: You will get no training from us.

Flexible work hours: You will frequently work long overtime hours.

Good organizational skills: You’ll be handling the filing.

Make an investment in you future: This is a franchise or a pyramid scheme.

Management training position: You’ll be a salesperson with a wide territory.

Much client contact: You handle the phone or make “cold calls” on clients.

Must have reliable transportation: You will be required to break speed limits.

Must be able to lift 50 pounds: We offer no health insurance or chiropractors.

Opportunity of a lifetime: You will not find a lower salary for so much work.

Planning and coordination: You book the bosses travel arrangements.

Quick problem solver: You will work on projects months behind schedule already.

Strong communication skills: You will write tons of documentation and letters.

Equation of Earnings

Engineers and scientists will never make as much money as business executives. Now a rigorous mathematical proof has been developed that explains why this is true:

Postulate 1: Knowledge is Power.

Postulate 2: Time is Money.

As every engineer knows,

Work = Power * Time

Since Knowledge = Power, and Time = Money, we have:

Work = Knowledge * Money

Solving for Money, we get:

           Work
Money = ----------
         Knowledge

Thus, as Knowledge decreases, Money increases, regardless of how much Work is done.

Conclusion: The Less you Know, the More you Make.

Note: It has been speculated that the reason why Bill Gates dropped out of Harvard’s math program was because he stumbled upon this proof as an undergraduate, and dedicated the rest of his career to the pursuit of ignorance.

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In response to the current economic situation, many businesses are being more deliberate when it comes to deciding who to work with and hire. This includes their relationships with other businesses. Not surprisingly, conducting business background checks is fast becoming a standard practice among companies big and small.

Getting information on potential business partners or clients is important- especially for small businesses. Knowing about a company’s credit rating, financial status, reputation, and legal standing can help business owners and their management avoid risky business-to-business transactions.

Here are few tips for conducting effective business background checks:

• Start with a simple Internet search. By doing a search on the business’ name you should get an initial glimpse of its web presence. This includes the business web site as well as any other posted articles or references. This is a good place start your background check.

• Check out the company’s local reputation and references. Ask the business for a list of current references. This list may include clients, partners, vendors and creditors. Make sure to get in touch with at least three of the references provided. You can also check out the local Chamber of Commerce and Better Business Bureau to see if they have any information on the particular company.

• Look at the company’s business credit report. The three credit bureaus, Experian, Equifax and TransUnion, as well as Dun & Bradstreet provide extensive credit and financial reporting on millions of companies. Armed with this information, business owners can assess another company’s operational health and its ability to pay off a debt. For a fee, any business seeking this kind of information can open an account with each of the credit reporting agencies.

• Conduct a legal background search. Search for any lawsuits, judgements, liens, and bankruptcies connected with the company, as well as any criminal records held by its owners or management. Usually this information is available at the local courts. Click here for a listing of court websites. You can also consult the Office of Foreign Assets Control’s (OFAC) Patriot Act Search Database for criminal backgrounds on both individuals and companies. This is a government watch list of criminals and terrorists collected from databases around the world.

• For publicly held companies, consult the SEC. The Security and Exchange Commission provides financial and business information about publicly held companies via EDGAR the Electronic Data Gathering, Analysis, and Retrieval System. All companies, foreign and domestic, are required to file registration statements, periodic reports, and other forms electronically through EDGAR. Anyone can access and download this information for free.

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Having a good business credit rating is a golden key that can help open the doors of financing- whether from the bank, vendors and suppliers, or potential investors. And with the current economic environment making it harder for small businesses to get the financing they need, this key is all the more vital to the success of a business.

Here are a few tips to help build up and maintain your business’ credit profile:

Tip #1: Separate your business credit profile from your personal credit. Many business owners are unaware of this option, especially if they are running a sole proprietorship, and they finance their businesses with their own credit and assets. This can be a costly mistake, since your personal credit profile will then directly effect your business credit, and visa versa.

Tip #2: Register your business with the major credit reporting agencies and monitor reporting. Banks, credit card companies, utility, and phone companies, as well as numerous other businesses will report billing and credit information regarding your business to the major credit reporting agencies: D&B, Experian, Equifax and TransUnion. With this information, the credit reporting agencies produce reports and credit scores. Keep in mind that any information on your business’ financial status, as well as any court cases and bankruptcies will also make their to these reports. Thus, it is important to monitor these reports regularly.

Tip #3: Make good cash flow management a priority. Make it a priority to pay your bills on time. Simple idea, right? It just may not be so simple to implement- especially if business has not been so great lately. In a previous article I included a few doable tips to improving your small business’ cash flow.

Tip #4: Seek out transactions that will improve your credit score. As I mentioned above, whether you realize it or not, chances are that your business is already generating data that can be accessed by a third party to determine your business’ credit-worthiness or financial stability. You might as well specifically seek out those arrangements that will build your business’ credit profile. You can find out which businesses report to the credit agencies and make it a point to do business with them and to keep your payments on time. The credit reporting agencies themselves also offer a number or credit-building services for a fee. 

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