Mercator Blog

Small Business Credit Cards: PPP and Main Street Lending Save the Market
Date: May 6, 2020
Brian Riley
Director, Credit Advisory Service

Small business credit cards were on a course of continued growth when 2020 began. Mercator Advisory Group estimated then that 2020 transaction volume would exceed $612 billion, a 7% increase over the prior year, as shown in the chart below.

 Small Business Credit Cards: PPP and Main Street Lending Save the Market_IMAGE

We cautiously hold to that forecast today until there is a more unobstructed view on the economy and the effectiveness of two government programs intended to stabilize the small business market. Federal assistance does not directly affect small business credit cards, but it helps to keep businesses afloat.

We anticipate decreased transaction volume for the year based on reduced travel and entertainment expenditures, deferred procurement, and changes in other small business spending.

COVID-19 Changed Everything

As sheltering at home became the order of the day, large and small businesses throughout the U.S. floundered. According to Fortune's infographic, the United States stock market fell a striking 33.9%. That is not as bad as the stock market drop in other North American countries, with Canada experiencing a 42.8% decline and Mexico dropping 46.5%.

Small businesses, which number 6 million companies in the United States, each with fewer than 500 employees, experienced devastating stress as shelter-at-home mandates affected food services, hospitality, personal service, retail, and other sectors. The pandemic crisis which arose so abruptly is far from over. Many states ordered small business closures for non-essential services in early March 2020, and now 60 days later, those mandates are being revoked as the nation cautiously adjusts to the new normal.

The U.S. Small Business Administration cites eight common issues: capital access, workforce capacity, inventory and supply chain shortfalls, facility remediation/cleanup, insurance coverage issues, changing market demand, business marketing, and a disruption of business plans.

Historic Government Bailout Aims to Protect Small Business

The CARES Act, officially the Coronavirus Aid, Relief, and Economic Security Act, is a $2 trillion "economic relief package," as the U.S. Treasury states on its website. Two programs target small businesses, the Paycheck Protection Program (PPP) and the Main Street Lending Program (MSLP). Despite some criticism of these programs, they are intended to stabilize small business employment and infuse loans in an attempt to ensure business continuity.

Paycheck Protection Program, funded at $344 billion, provides small businesses with 500 or fewer employees with a forgivable loan for up to $10 million. If the small business maintains its payroll for eight weeks after the loan booking, the debt will be forgiven. An additional $320 billion received Congressional approval in April 2020.

Main Street Lending Program is a $600 billion insured loan program for employers with 10,000 or fewer employees. Banks hold only 5% of the risk, with 95% guaranteed by the federal government.

How Small Business Credit Cards Fit into the Equation

The small business credit card enables firms to transact similarly to a general-purpose network-branded credit card. Chase's Ink Business Preferred credit card requires, as other small business credit cards do, "that the card is being used only for business purposes." With business at a halt, the utility of the card is effectively limited to routine bill payments such as internet access and presence, services, sundry expenses, and supplies. Small business credit cards, which often carry cash advance interest rates in the neighborhood of 25%, are not likely to be the best vehicle to support payroll, a profound difference to PPP. Similarly, MSLP offers an installment lending option for business expenses.

We will revisit the Small Business Credit Card forecast in July, and we hope that the new normal provides a rosier picture of days to come. A review of the U.S. small business credit card market is in this Mercator report.