Advanta’s uncollectible debt reached 20% as of March 31 prompting the small business credit card issuer to shutdown new lending as of June 10th to preserve capital. Advanta is offering 65 to 75 cents on the dollar to its securitized debt holders.

The shutdown in credit by Advanta will affect as much as a million small business owners who will now need to find alternative lenders to support their businesses. Due to recession and unavailability of credit through normal lending sources (banks, funds, etc), a large number of small businesses have turned to using credit cardsĀ  to continue to fund their businesses. This action by Advanta will have serious repercussions in the small business community in US.

While Advanta plans to preserve capital and wait out until normal times resume, it is quite possible that may not be the eventual outcome. Existing credit card customers will likely fall further in default with Advanta as paying the company will now be much lower in priority for them. Additionally, Advanta’s debt rating is now junk which will make it impossible to raise additional capital and ineligible for TALF largesse.

Shailesh Kumar

Shailesh Kumar

Shailesh Kumar is an Entrepreneur, investor and blogger. He writes about value investing at Value Stock Guide. Learn about the stock market and discover the techniques proven to work best for long term investors for finding appropriate stocks to buy in their portfolio to get superior risk adjusted returns.