Tightening Credit Hurts Small Businesses

Tightening Credit Hurts Small Businesses

September 06, 2010
Originally published in The Washington Post

The Sept. 1 editorial "On better terms" conceded that overall interest rates have risen on credit cards after the passage of the Credit CARD Act and that the limits on credit that have resulted may be slowing economic growth. It concluded, however, that these drawbacks are tolerable because "the consumer-credit business is being put back on a more sustainable basis."

Overlooked was the role personal credit cards play in business startups. According to a survey by the Kauffman Foundation, 48 percent of new businesses used personal debt of the owner, most commonly with personal credit cards, for financing.

Among the entrepreneurs who used personal credit cards to get their start was Sergey Brin, who as a college student in the 1990s tapped into this source of credit to build a search engine that today we all know as Google. This method of financing, however, probably would not have been so available had the CARD Act restrictions been in effect back then.

How many future innovative new businesses are we sacrificing with this law and other misguided credit card restrictions?