MSMEs urged to use credit cards for funding shortfall

Pay for goods by credit card through a smartphone in a coffee shop.

MANILA  -Credit cards can be a viable financing tool for small enterprises seeking loans amid a countrywide business funding gap that is estimated in the trillions of pesos.

Industry group Credit Card Association of the Philippines (CCAP) said certain micro, small and medium enterprises (MSMEs) could tap credit card loans for “short-term financial needs.”

“[B]ut it cannot be used for long-term goals such as business expansion, which demands higher capital and is best funded through a bank loan,” CCAP executive director Alex Ilagan said on Monday.

CCAP said it was stepping up efforts to raise awareness on the use of credit cards for business. Cards can serve as a funding source for working capital without the need to formally apply for a business loan, “which can be a tedious process and may even require putting up collateral that they do not have,” it noted.

Ilagan said they also wanted customers to be aware of the pitfalls if they mismanage their debts.

Interest-free

“There is a 30-day monthly billing cycle and 21-day payment grace period provided by credit card issuers so MSMEs can enjoy interest-free credit for up to 51 days from the date of transaction. Best to use your card just right after the billing cutoff date indicated in the billing statement because it will allow you to enjoy the longest interest free credit float,” he said.

‘Revolvers’

Citing data from the Bangko Sentral ng Pilipinas (BSP), CCAP said about 65 percent of credit card users pay their total outstanding balance in full every month. The remaining 35 percent are “revolvers” who pay only the minimum amount or any amount less than the full outstanding balance.

Industry data from BSP also showed that card delinquency rates were down to 3.26 percent in the first quarter of 2023 versus 4.03 percent in the same period last year. Card delinquency refers to the payment of less than the minimum amount of credit card debt for at least three billing cycles.

“We know that MSME owners often mix their personal and business finances. They use their personal credit cards to pay for bills or purchases related to their business, enabling them to manage tight cash flow situations. Credit cards can be more than that,” Ilagan said.