Credit-worthiness has become an issue for many small businesses today and with the state of the economy, many just don’t have the time and track record to negotiate with banks for fresh credit. Asset-based lending becomes a viable course of action to which they resort.

Commercial Finance Association said that asset-based lending (mortgages excluded) swelled by 8.3%. The 2009 data are still being gathered but initial findings indicate a jump in lending in general.

The thing is, these collaterals can range from equipment to future earnings. The rates are often higher than more traditional credit.

More lenders are also keen on getting into asset-based lending. With credit-worthiness and track record not really offering serious guarantees that loans will be paid, collaterals offer tangible means for them to recoup whatever they dole out.

One tasty provision that would protect consumers is the part that requires credit card companies to notify customers at least 45 days before companies can hike interest rates and change fees. Credit card companies would also not be able to jack up interest rates on existing balances if customers are able to pay their bills on time.

Lenders have previously exploited both avenues to charge their customers. A study revealed that card companies earn $10 billion annually from both avenues. With the new law, that would mean less revenue for them but that would also give consumers the much-needed break especially with many still suffering from the effects of the economic downturn.

These regulations, however, will not affect company credit cards – a thing that many small business owners are not quite too happy about. Many are now resorting to credit cards for quick capital injection especially with bank loans and credit are drying up. Small business owners would get a huge break given similar protection.

Using personal credit cards for business purposes is considered a bad idea since it risks affecting a person’s credit score instead of the company’s.

Source: CNN