Nicole Pritikin, the owner of an online knitting and yarn shop in North Bennington, Vt., was so happy with her credit card from Advanta Corp. that she praised the company in its 2001 annual report. "The checkbook is history!" she said.

Since last week, though, she has switched her automatic bill payments to another credit card and redeemed her Advanta rewards points. The reason: The Spring House, Pa., company is walking away from all one million of its customers.


As the Senate passed a bill Tuesday that imposes tough rules on card issuers, small-business owners throughout the U.S. were scrambling to replace Advanta credit cards that essentially will be canceled on June 10. The company will continue to accept payments on existing balances, but won't make any new loans.

Advanta's move is one of the most extreme retreats in the credit-card industry, which is being racked by record delinquency and default rates. While Advanta is a tiny player overall, with about $5 billion in outstanding card loans compared with $176 billion at J.P. Morgan Chase & Co. as of March 31, Advanta focused solely on small businesses.

That niche left Advanta especially vulnerable to the recession. Default rates on Advanta cards were about 16% of outstanding loans in the first quarter. That is about double the default rate at American Express Co., the nation's largest issuer of small-business cards.

Advanta posted a first-quarter net loss of $76 million, and its share price has plummeted 90% in the past year. On Tuesday, the stock rose one cent, to $1.04, in 4 p.m. Nasdaq Stock Market composite trading.

Small-business owners have been among the most severely hurt by the credit crisis and recession. Banks have pulled back on small-business loans in recent months, forcing company owners to rely more heavily on plastic for many of their expenses. Card issuers are leery of small businesses because of their volatile revenue streams.

According to a recent survey by the National Small Business Association, credit cards are the most popular form of financing used by small business to finance their capital needs. One-third of small businesses reported that their credit lines had been reduced in the past six months.

Other card issuers also are turning their backs on higher-risk customers. J.P. Morgan isn't investing in the card business it got as part of last September's purchase of Washington Mutual Inc.'s banking operations.

Ms. Pritikin said she has started using her personal credit card for business expenses such as mailing, advertising and marketing. She plans to keep using that card unless it gets too unwieldy to combine business and personal expenses.

Her company, called the Naked Sheep, racks up about $2,500 in monthly expenses. She cashed in her rewards points for a $250 prepaid credit card.