The Green Sheet Online Edition
January 1, 2025 • 25:01:02
How business line of credit cards empower SMB owners
There are over 33 million small businesses in the United States. Together, they generate more than 43 percent of the country's GDP and employ almost half of the American workforce (see bit.ly/4amkM5B). Despite their essential role in the U.S. economy, 38 percent of small businesses reported they lack ready access to the working capital required to finance their operations and pursue growth opportunities (see bit.ly/40maBtp).
Many banks, credit unions and fintechs recognize the importance of quick decision-making and access to funds, embracing technology that automates much of the SMB lending process. However, with the economic landscape rapidly changing, financial institutions (FIs) must look beyond traditional lending and banking solutions to help small business customers thrive in a dynamic marketplace.
What small business owners need most is real-time access to capital that enables them to better manage cash flow, respond to market opportunities and guard against financial risks. Beyond traditional SMB lending products, innovative FIs are further supporting their small business customers by offering business lines of credit (LOCs) paired with payment card access. This equips small businesses with 24/7 access to capital that can be managed directly from a digital platform.
Advantages of business LOC prepaid cards
Flexible financing through a business LOC allows institutions to address unique small business needs more effectively. Business LOCs enable SMB owners to have full control over the amount they draw to cover specific expenses, ensuring they use funds only when needed. This flexibility significantly reduces costs incurred from interest on unused capital.
Rather than relying on typical banking hours and traditional methods like ACH and wire transfers, small business owners with a business LOC card have almost instant availability of funds anytime, anywhere. This unbridled access empowers business owners to capitalize on opportunities—whether it's purchasing new equipment, executing that important marketing campaign or handling unexpected expenses. For instance, a small landscaping business might experience a significant increase in clients within several local neighborhoods. The father and son who co-own the business want to capitalize on this growth by expanding their operations. This means purchasing additional equipment and investing in a new vehicle.
Instead of going through the traditional bank process to secure a loan, the landscaping business can use an LOC payment card to draw the exact amount they need to finance their expansion.
Advantages for financial institutions
Business LOC cards also provide significant advantages for issuing FIs, providing a competitive edge over institutions that do not offer flexible, tailored financing solutions.
- Increased stream of revenue: LOCs generate revenue through interest from drawn funds, as transaction fees and cards associated with an LOC generate spending-based interchange revenue. Unlike traditional loans, which are typically one-time transactions, banks issuing business LOC cards can capitalize on ongoing usage of both the LOC and the card. This can boost an institution's bottom line.
- Enhanced customer retention: Business owners are more likely to stay with institutions that provide tailored solutions that address their unique growth and financing needs. Offering LOC cards can strengthen relationships with small business customers seeking more flexible financing.
- Expanded borrower pool: LOC cards may appeal to a larger range of small businesses, including ones that may not qualify for traditional loans. Tapping into a larger segment of consumers enables institutions to attract new customers and grow their lending portfolio.
Increased protection from risk and fraud
Compared to traditional credit cards, issued LOC cards often have enhanced security features that can mitigate risks associated with unauthorized use. Payment cards tied to LOCs enable business owners to safely leverage their credit by reducing potential fraud risk.
The spending limits set by institutions reduce the risk of business owners over-drawing funds and the chance of defaulting. Institutions can monitor transaction patterns for signs of financial strain, enabling them to intervene early. Additionally, real-time monitoring can track and analyze transactions to detect suspicious transactions, preventing unauthorized access.
By offering flexible, secure capital access, business LOC cards strengthen institutions' lending portfolios and empower small business clients to manage capital more safely, fostering sustainable growth while mitigating exposure to potential risks. 
Will Tumulty serves as CEO of Rapid Finance, www.rapidfinance.com. Contact him at linkedin.com/in/will-tumulty-15a6462.
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