On Saturday, thousands of Advanta cards became useless plastic as the issuer of small-business credit cards turned off the tap. Spring House, Pa.-based Advanta Corp. announced the drastic measure earlier this month (CardLine, 5/12, 5/26) after reporting first-quarter charge-offs of 15.86% of managed receivables and an admission that its securitized master trust would go into early amortization on June 10, preventing funding of any new receivables. Advanta hiked interest rates dramatically for many of its cardholders last fall, a move that only served to worsen the credit quality of its portfolio, notes Sameer Gokhale, senior vice president of specialty finance and equity research at Keefe, Bruyette & Woods Inc. "When you do that, you're stuck with the problem of adverse selection," Gokhale tells CardLine. "Those cardholders who are a good risk will pay that card down and go to another issuer with a better interest rate, and you're stuck with cardholders who can't go elsewhere." Small-business owners have few other places to go, says Marilyn Landis, president and CEO of Basic Business Concepts Inc., a Pittsburgh-based consultancy for small-business owners such as herself. Landis plans to pay down the $15,000 she owes Advanta, she tells CardLine. But Landis has been paying only the minimum payments due on some of her other credit cards because issuers keep lowering the credit ceilings on both business and consumer cards. She advises other small-business cardholders to do the same to keep cash available for expenses they no longer can expect to cover with revolving credit. "We're paying cash for whatever we can pay cash for," Landis says. "We'll book with a credit card then pay cash for a hotel room." Other business owners Landis advises are facing the same problem, she says. As for her handful of remaining cards, Landis says she prefers the Visa-branded business card Wells Fargo issues. "They've never played games with me," she explains, adding issuers have an opportunity to grow loyalty among remaining and new business cardholders. "We're looking at the cards we have and those that are dependable," Landis says. "We're going to lean toward those and take very good care of them because they're precious."

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