As a business manager for an established and successful small business, I am keenly interested in the availability of capital. Not only to plan for future growth and increased profitability, but to sustain current operations as the marketplace enters the 2Q of 2010 and begins to put the recession behind it.
Recently, I read a Wall Street Journal article from March 18 written by Emily Maltby, “When Business Credit Scores Get Murky”. I found the topic of business credit scores timely as I analyze spreadsheets and financial ratios to try and renew my company’s credit line.
The article investigates whether or not good business credit scores are sufficient for small businesses to obtain bank loans and credit lines. I concur with the author and executives interviewed that good business credit scores are one of the metrics used by lending institutions to make loans; however, even good credit rarely stands alone today when banks decide to extend capital. From conversations I have had with bankers the past few weeks, banks prefer to make lending decisions that also consider strong cash flow and collateral. Specifically, they want collateral property to back up the deal in the event the business fails.
My company has been in business for over fifteen years, and by bank definition, exceeds the gross revenues usually attributed to a small business ($2.5 Million/year). Extending our credit line at its existing limit is proving very challenging due to extended circumstances beyond good credit scores. I am thankful we are not a start-up company seeking seed capital. Based on what I am seeing, capital is very limited and/or next to non-existent for new enterprises or less established companies developing a book of business in the current lending environment.