Is Now A Good Time To Get Started With Credit Card Borrowing?

With an improvement in the current economic outlook and market liquidity conditions, banks are now looking at growth options to increase their earnings. As a response to greater competition and changes in risk appetite, banks and federal associations have eased underwriting standards to expand their loan portfolio and achieve expansion. This spells good news for start-ups or small businesses looking for funds, as availing finance just got easier.

If you are an entrepreneur or a small business owner, one way in which you can avail finance to fund your operations or get your business off the ground is through credit card borrowing. One advantage with using credit cards is that it removes the need to get costly funding from investors. Moreover, you can draw down as much money as you require, as and when you want it, provided that it is within a certain limit.

According to the 19^th annual “Survey of Credit Underwriting Practices” conducted by The Office of the Comptroller of the Currency (OCC), during the period ending June 30, 2013, credit cards were among the loan products that experienced the maximum easing of underwriting standards. The survey shows that during this time, 33 percent of the banks under examination eased lending protocols for credit cards, while 54 percent kept them unchanged.

Most banks relaxed underwriting standards through changes in credit lines, pricing and fees, scorecard cut-offs, debt-to-income ratios, and documentation requirements, making borrowing through the credit card route much simpler and cost effective than before. This trend is expected to continue, with more banks slated to increase their exposure to this product segment. The perception of risk towards this segment from the bank’s point of view has also stabilized, with the result that they are now willing to allocate a larger percentage of their loan portfolio towards credit card loans.

Small business owners have additional reasons to celebrate, as another segment in the loan portfolio of banks that has received a boost is the small business loans division. Since 2012, 79 percent of the banks under survey reported unchanged standards for this division, while 21 percent actually eased lending protocols. Moreover, with improved economic conditions, the level of small business credit risk at 81 percent of the banks surveyed has declined or remained the same.

Thus, in the current economic scenario, banks and federal institutions are eager to expand their business by offering credit cards and small business loans at highly competitive rates. If you have been looking for an opportunity to start or extend your business, but have been unable to do so due to lack of funds, now is your chance.