[classicman]

Advanta Corp., the credit-card issuer for small businesses, may leave 1 million customers scrounging to find new lenders and debt holders facing losses of 35 percent after the company shut down accounts to preserve capital.

Advanta will cease lending June 10 after uncollectible debt reached 20 percent as of March 31,... The lender earmarked $1.4 billion to buy back securitized card loans with offers of 65 cents to 75 cents on the dollar....

Advanta decided to cut off customers after “charge-offs” rose to twice that threshold, from 9.6 percent at year-end.

“The question is how many business owners depend solely on their Advanta credit card,” said William Dunkelberg, chief economist at the National Federation of Independent Business. While most probably have other sources of credit, self-employed entrepreneurs may have trouble getting a new card, he said. “Credit is harder to find than it’s ever been in this expansion,” said Dunkelberg, whose biography lists him as a former Advanta director...

“We’ll be shutting down accounts for future transaction activities, but many of the customers will maintain balances and pay us off over time,” Browne said yesterday in a telephone interview. “We’ll have to service and collect on that, and that will be the first order of business for the company.”

More than 90 percent of Advanta’s small business customers will have “adequate” access to alternative credit after the company halts lending, Browne said...

“Early amortization has been viewed as a catastrophic event for issuers,” Scott Valentin, an analyst at Friedman Billings Ramsey & Co., said today in a research note. Advanta’s filing said that the charge-off rate for uncollectible loans may increase after accounts are closed. Valentin said that’s likely because “the cards have substantially less utility to cardholders,” cutting the incentive to keep up with payments.

“They’re hoping they can stay alive barely until the environment changes,” said David Robertson, president of the Nilson Report, the Carpinteria, California-based industry newsletter. This is “a big sign that the credit-card industry has problems that are going to be around for several years.”