Amex offers short-term credit

Credit card issuers learned long ago that many small-business owners use their personal credit cards to fill gaps in cash flow. So why not come up with cards that are geared specifically for small businesses?

Many have, and American Express Co. is among the latest to put out a new small-business card.

Amex started taking applications this month for its Plum Card, which offers early payment discounts and an option to defer payments for up to two months with no interest, instead of the usual 30 days.

Amex is promoting the pay-in-full card as an alternative to trade terms credit, which is a form of short-term credit negotiated between a small business and its suppliers.

The card is "the first of its kind," said Raymond Joabar, a senior vice president at Amex's small-business division in New York City.

"Trade terms are an incredibly important financing tool for small businesses," he said in a recent phone interview.

Nearly two out of every three small businesses have access to some form of trade terms credit, according to a marketing study done recently for Amex by Arduin, Laffer & Moore Econometrics, based in Tallahassee, Fla.

The study found that 38 percent of the small businesses that use trade term credit received discount prices on supplies if they paid the supplier quickly. The typical arrangement was a 2 percent discount if the payment was made within 10 days of the purchase.

Amex's Plum Card, which carries an annual fee of $185, waived for the first year, borrows from that practice. It pays rebates of 1 percent on purchases of less than $5,000 when paid within 10 days, or 2 percent on larger purchases when paid within 10 days.

The rebates, paid by Amex, are posted as credits in the next billing cycle.

Joabar expects the Plum Card to be in demand in the construction, auto repair, retail, wholesale and information technology industries, where cash flow issues are the norm.

According to the trade publication American Banker, the Plum Card may compete with a MasterCard–branded product with a 60-day interest-free grace period, a card geared for construction companies.

Another small-business card, JPMorgan Chase & Co.'s Business Rebate Card, offers 3 percent back on purchases made at restaurants, gas stations, office supply stores, building supply stores and hardware stores.

It pays 1 percent on all other purchases. The grace period for interest-free repayment is 20 days. After that, interest rates ranging from 13.5 percent to 22.5 percent kick in.

MasterCard Inc. recently launched a card, co-branded with Continental Airlines and General Motors Corp., which targets businesses that charge at least $25,000 a year. Rewards for using the card include special tables at restaurants and tee times at golf courses.

Small-business owners should be aware, however, that small-business cards come with the same pitfalls as consumer credit cards: Pay late and you are likely to be hit with a hefty late payment fee and, often, a huge upward rate adjustment.

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