America's 32 million small businesses are a heterogeneous group that operates across a variety of industries and contribute more than 43 percent of gross domestic product. One thing they have in common is the need to manage cash flow, which is often irregular (Farrell, Wheat and Mac 2018, 2020c). As demonstrated during the pandemic, cash liquidity can be essential in times of crisis.
One way small businesses can manage irregular cash flows is to have cash reserves. The Institute's previous research has documented that the typical small business holds enough cash to sustain 15 days of normal outflows even if inflows completely cease (JPMorgan・Chase Research Institute, 2020).
Most small businesses have credit as another source of liquidity, and credit cards often serve that role. In 2019, small business commercial and industrial loans outstanding were $368 billion, of which more than 46% were loans of less than $100,000. The majority of loans in this size category were small business credit cards (U.S. Small Business Administration 2020). Many small businesses have credit cards. Seventy-nine percent of small employers had credit cards used for business purposes (NFIB 2012).
Credit cards are personal or business cards and are relatively new. Business credit cards have been offered since the 1980s, and card issuers began pursuing this area more aggressively in the 1990s (Blanchflower and Evans 2004). Small businesses use both personal and business cards. 49% of small employers use personal cards for business purposes, and the smallest businesses (less than 10 employees) use personal cards more than businesses with 50 or more employees. (NFIB) 2012). The 2003 Small Business Finance Survey reported that 48 percent of small businesses use personal cards and 47 percent use business cards (Federal Reserve Board, 2010). Small businesses were more likely to use personal cards (Blanchflower and Evans 2004).
Despite policy interest in SME financing more generally, little research has been conducted on SME use of credit cards, a common and widely available financial instrument. Most studies rely on survey data (Blanchflower and Evans 2004, Board of Governments of the Federation Reserve System 2010, NFIB 2012), and the Small Business Finance Survey was discontinued after 2003. Recent research bureau (CFPB) credit card databases that utilize administrative data such as the Consumer Financial Protection Program focus on consumer cards and cannot link card usage to other financial variables ( CFPB 2019).
Policy makers and other decision makers considering the credit needs of small and medium-sized enterprises may be interested in how to utilize the financing facilities that enterprises already have. Our research used more than 10 years of his longitudinal data that correlated small business cash flow with credit card usage. We provide insight into the trajectory of business card usage from 2010 to 2022, when business cards were available and more widely used.
This report focused on small business credit cards and their use as financing (revolving) or payment (transaction) instruments. Businesses may use personal and business credit cards, but the scope of this report is limited to business credit cards. We use anonymized administrative data from savings and credit card accounts to analyze how small businesses use credit cards for financing given their cash flow situation. did. In particular, I found the following:
- Survey results 1: The proportion of businesses revolving credit card balances has decreased as cash balances have increased since the onset of the pandemic.
- discovery 2: Most companies are either consistent traders or revolvers.
- discovery 3: Small businesses with high cash liquidity are less likely to revolving credit card balances.
- discovery 4: Many revolvers appear to have enough cash to pay their credit card bills in full, but some may maintain a cash buffer instead.
Data assets and methodologies
Our research sample is designed to analyze the interaction between small business finance and the use of credit cards as a financing instrument. To our knowledge, this is the only dataset that links detailed longitudinal data on business credit cards and savings accounts.
As with much of our small business research, all of the anonymized companies in our sample have Chase Business Banking deposit accounts that meet our criteria for being active and small. Additionally, we limited our sample to small businesses with one Chase business credit card linked through the savings account owner. Although this restriction provides a clearer picture of the relationship between small business finances and credit cards, it may not capture the intricacies of how small businesses use credit cards to manage their finances.
Our unique data linking company finances and credit card usage provides valuable insight into small business financing decisions that would otherwise not be possible. However, our research sample covers a segment that is not representative of all small businesses, even those with credit cards.
Because of our focus on business credit cards, the companies in our sample are generally larger compared to those using personal cards, but even if they have other cards, they still have multiple Chase businesses. You can see that the company is not big enough to own a card. The appendix describes the sample in more detail and discusses this limitation and its implications. In the sample defined above, we created a longitudinal dataset based on each credit card's billing cycle. See Box 1 for more information on how we used billing cycles and transactions to build our revolving balance.
