Advanta Gives Me The Kiss Of Death!

Advanta Bank Corp. is exiting the credit card business, which means that some small businesses have one less option available to them to help finance their operation. If you're considering launching your own business, you desperately need working capital. I've outlined four financing options that are worth taking a look at.

Advanta Bank Corp. recently warned its cardholders that they were giving them their walking papers, announcing effective May 30, 2009, that they were getting out of the credit card business. I received an email notice yesterday morning confirming the same along with a snail mail notice later in the afternoon.

I’m being dramatic when I say that Advanta is giving me the kiss of death. They aren’t, but for some small businesses this could be one of their few remaining lifelines to help prop up what they do.

Spreading My Finances Among Several Institutions

To be sure, I don’t rely on Advanta or any other credit card company or bank exclusively to fund my operation. I learned a number of years ago that trusting all of my finances with one financial institution is a big mistake. I keep my business and personal checking accounts separate as well as anything else to do with my business. Still, I’ll have to remember that my Advanta business card isn’t good for much longer and will pay off my zero percent balance before the introductory offer expires at the end of this year.

I’m not sure if Advanta’s decision to exit the credit card arena has to do with President Obama’s recent consumer credit pronouncements or if the company realized that it is much more of a hassle to stay in this business then to make an exit. I read elsewhere that the company is trying to cut its losses and preserve capital, something that probably has been more of a challenge for them since the markets began their collapse last September.

Exploring Your Options

Over the past few months I’ve been in touch with several people who have considered launching their own businesses, particularly after experiencing a job layoff. Because credit has tightened, options available just one year ago have changed and, in some cases, evaporated.

Still, if you are looking to start a business there are some ways you can get going. Choosing the right option for you can depend on your personal risk tolerance, something you’ll have to determine yourself:

Raid Your Retirement Account — This move flies against conventional wisdom, but we’re not in normal times. Too many people took a beating with their retirement funds last fall with some people learning that they have much less money for their golden years and no job either. Borrowing from your account is better than making a withdrawal, your tax adviser can give you some tips on the best approach, but it could be the only option available to you if you need to launch a new business.

Tap Your Home’s Equity — America’s homes used to be a cash cow for funding all sorts of projects and dreams. These days, too many Americans are finding themselves “upside down” with their mortgages, owing more on their homes then what they are worth. Still, quite a few people have a significant amount of money built up in their homes, making them important places to go for cash.

Friends & Family — If you are a hard worker and have a reputation for paying back on what you owe, your family members or friends may have the funds available to help you out. Consider approaching one or more people for a loan or, if you have a solid business plan in place, approach those you know with a business opportunity — something that they can invest in. You may not like having someone else as a stakeholder in your business concern, but if that’s the difference between obtaining a loan or sitting on the sidelines, then you may not have any other option.

Angel Investors — People who invest their own money in a business are angel investors while people who invest other people’s money in a business are venture capitalists. That differentiation noted, either party could offer to you what you need to get going.  Angel investors often stand in the gap between your personal assets used, funding raised by friends and family members and remaining funds needed. Most want to see that you have some skin in the game before adding their own monies so don’t look for outside funding without your contribution. Oh, by the way, venture capitalists charge very high fees and may demand a seat on your board in addition to regular scrutiny of your books.

Counting The Cost

Most certainly you may no longer be able to borrow off of your credit card in order to fund your business, but you may be able to secure a small business loan through your bank. Regardless, expect to pay a hefty interest rate on your borrowing because banks are fairly risk adverse these days and if your loan is unsecured they’ll make sure that they extract the highest interest rate from you possible.

Photo Credit: Philippe Ramakers

See Also — Surviving Microeconomics: What Your Landscaper Hasn’t Told You

Student Credit Cards — A Smart Choice!

By Matthew C. Keegan

This article was previously published under the title, “The Wisdom of Obtaining A Student Credit Card.”

For some parents, the idea of entrusting their adult child with a credit card while they are off working toward their university degree sounds like pure madness. Certainly, there must be a better way to make sure that your child’s needs are met while they are away from you, right? Well, if you are worried about your ace student running up debt while they are in school, then that is a valid concern. However, what better time is there to learn how to manage one’s personal finances than when going to school? There is wisdom in obtaining a student credit card; you just need to see the big picture and establish some ground rules before your student applies for one.

Many parents cringe when they send their adult children off to college. If your child has a tendency to be irresponsible, then college can either fuel that irresponsibility or teach your child how to grow up in a hurry. Unfortunately, it isn’t always clear how your child will respond to being “free” until you drop them off at their dorm and head back home.

A student credit card could possibly be dangerous for your student if they do not fully understand the responsibility of managing their personal finances. So, this is where you come in — before your child applies for a student credit card you must discuss several things first including:

Will the card be in your child’s name only or will you be co-signatory? With the former option, you will not have any control over your student’s spending, therefore it is imperative that you tell him how managing his credit now can impact him after he leaves school. That is, any credit problems that come up due to his irresponsibility can keep him from buying a car, a home, even securing a job once he enters the “real world.”

If you are co-signatory on the card then you can keep a lid on his spending and check his statement out each month. With the latter option he will not be able to build up credit on his own, thus a student credit card issued only in the student’s name will help him establish a personal credit history.

Will the card be used for every day purchases, emergencies, or something in between? You probably don’t want to encourage your daughter to fund dorm-wide Friday night pizza parties with her student credit card, but you may think it a great idea to have the card on hand for book purchases and for emergencies. A student credit card can help you come tax time too as all of the deductible expenses related to attending university are listed on each statement. Moreover, if your daughter has an emergency she can use the card to pay for automotive towing, a trip to the optician to replace broken eyeglasses, or to catch a bus ride home for the Thanksgiving break. No need to worry about paying for the expense of wiring money; a student credit card has your daughter covered!

If your son or daughter shows plenty of responsibility with their card it can only help them later on in life. Yes, there is a potential debt issue involved, but if you are paying tens of thousands of dollars per year for tuition, then that expense pales in comparison. Most student credit cards offer only a small credit line starting at $500 on up, so the concern about taking on massive credit card debt is overblown. In addition, you can always tell the credit card company that you want to keep the credit limit down – just because they may offer a $10,000 credit line does not mean you must take it.

Ultimately, a student credit card can be a wise choice for university families. With a student credit card there is no need to worry about your child carrying around a wad of cash or wondering how they will handle an emergency when you are not around. A student credit card can offer the security and peace of mind that everyone needs when your adult child is hundreds of miles away from home and unable to turn to Mom and Dad for immediate help.