Another sad news on the business front, with a once mighty corporation falling down on its knees under the weight of insolvency. Advanta, a company specializing on small business credit cards have filed bankruptcy this month, citing insufficient cash flow as a major reason. The company also listed 14 of its affiliates in bankruptcy filing, but decided against including its banking unit, Avanta Bank. More than half of the company's customers have defaulted on their payments this year and it was no longer viable for the company to go on with its operations.
During its heydays, Adavanta boasted of a wide client base, and was ranked in the country's top twenty credit card companies by volume. With an anaemic economy still not showing any solid signs of picking up, many of their clients, small business owners and entrepreneurs had struggled keeping up with their monthly payments, with some seeking debt protection.
Court documents show that Advanta was saddled with debts amounting to $331 million, with $363 million reported assets. Although on paper the company did not seem to be entirely desperate with assets still above total debt, Advanta reported having difficulties collecting money from clients. Even with $100 million in cash, it still did not have enough cash flow coming in to keep up with costs and other obligations.
Earlier in the year, Advanta stated to reporters that as much as 60% of existing credit card holders were not making regular payments.
During the start of the year, the Pennsylvania based small business credit card lender closed down 1 million accounts.
Advanta also reported to have $2.7 billion portfolio of managed receivables that they are in the process of collecting.
With default rates hovering 60%, the company struggled to find good reasons why they should still remain in business. They were also having a tough time finding companies willing to infuse new money and bail them out of their predicament. Even their banking unit Avanta Bank, refused to infuse capital into the ailing company and decided that the money instead would be used to for senior rate retail note holders and other shareholders.
Compounding this problem were disillusioned small business owners who upon seeing the writing on the wall, felt that it was futile to pay their bills to a company that was sinking fast.
Advanta Bank, which for now manages to barely stay afloat, is also showing signs of instability as its capital do not meet regulatory capital requirements. If things in the company do not turn around fast, Advanta Bank may soon follow Advanta's lead and file for relief.