Another Small Business Credit Lender Files Bankruptcy

Traditional businesses aren’t the only ones feeling the bankruptcy bug. Many business lenders are struggling financially, too.

Add Advanta to the list. CNN Money reports that small business credit lender Advanta decided to file for Chapter 11 bankruptcy recently.

The company was hit hard with defaulting loans from small businesses as the economy worsened. In September alone the default rate reached 24 percent.

Recently, the company stopped new loans for more than one million customer accounts. They also attempted to collect $2.7 billion from a total of 360,000 customers, but have are still unable to get full returns.

Previously, the company tried different methods to stay afloat and avoid liquidations. They raised interest rates on credit cards to 25 percent, a move which upset many of their customers.

According to Business Week, the FDIC stated that the increases were unfair and deceptive practices. Advanta never denied or accepted liability for the increases, but the company was forced to send reimbursement checks to their customers by the FDIC for the “unfair” interest rates. Most of their small businesses customer base received checks of around $100.

The company also enforced layoffs for most of their workforce back in July. This left the company with about 200 employees to run the business.

Advanta excluded its subsidiary – Advanta Bank Corp – from the Chapter 11 reorganization and stated the filing should not have any impact on outstanding credit cards balances.

At this point Advanta’s Bank’s capital is said to be below regulatory requirements. Over time, Advanta Bank Corp might be turned over to a FDIC receivership to give the FDIC control over any liquidations for the business.

Chairman and CEO Dennis Alter advised he will waive his salary and his bonus during the Chapter 11 reorganization.

Said Alter: “The economic debacle over the last two years devastated Advanta’s small business customers and Advanta itself.”

Experts are interested to see how Advanta comes out of this reorganization and wonder if the business can avoid falling into Chapter 7 bankruptcy.