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

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