American Express sent me a list of credit tips for small business owners. They point out given the current economic climate it is more important than ever for small businesses to be vigilant about managing their credit and cash flow.
Their tips for applying for credit are:
1. Clean up financials. Review your company profile and credit report regularly and immediately address any issues, mistakes or irregularities in order to maintain your credit score.
2. Register your business. Register your business with commercial bureaus like Dun and Bradstreet and the Small Business Financial Exchange to make it easier for card issuers to confirm you are an established business.
3. Don’t apply for too much credit. Too many credit requests can lower your credit score and negatively impact your ability to access credit.
Their advice once you get credit is to practice good debt management, pay your bills on time and to manage your cash flow.
My Dad gave me similar advice when I first went out on my own. He grew up in a small farm town during the depression and was not a fan of debt.
He was OK with using debt to finance low risk investments to improve productivity like farm equipment. And he considered car loans a necessary evil. But he was very opposed to the use of debt for general small business spending and he really focused on cash flow.
It is interesting to contrast the advice being given by American Express with the business practices of the financial services industry over the last couple of years. My small business was deluged with credit offers and several times my existing lines of credit were expanded without me asking or anyone even talking to me (to be fair to AMEX, neither of these happened with them).
While painful for the economy and many small businesses, a return to more stringent lending standards and a greater focus on debt management and cash flow is good for all of us.
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