Small business owners sometimes seek my advice without bankruptcy being the topic of our discussion. In some cases, bankruptcy’s been a part of their past with some other business they’ve owned. They know bankruptcy law has changed, and want to know what to expect if things get to that point again. Other times business owners simple come to me for advice on managing debt or obtaining credit. Of course, as a consumer bankruptcy specialist in Indiana for such a long period of time, finances, credit, and debt are topics I deal with every day in my four bankruptcy law offices.

One big challenge right now for small businesses is being able to borrow enough money to keep their operations going smoothly and to expand. Banks in our state generally have capital to lend, but they’re being very picky about that lending. Established borrowers are definitely given preference over newer borrowers, but even companies that have been in business a long time are having trouble if their credit record is not quite up to snuff. Lenders are asking more questions, including details about exactly how the business plans to use the money, and, even more important, how the business plan supports repaying the loan. Lenders are wanting to see well-thought out and carefully researched plans about target markets, competition for that business, etc..

In Small Business Bankruptcy And The Corporate Veil, I talked about the fact that business owners are often required to pledge personal assets, including home equity, as security for a business loan. Today, I’m finding, even if personal assets are not required as collateral, a personal credit check is always a requirement before a business loan is granted. With home values down, there are meager pickings as far as home equity is concerned, so that’s one more part of the challenge for a small business owner.

In an Indianapolis Star piece called “Advice On How To Get A Loan“, Jean Wojtowicz, president of Cambridge Capital Management Corp., puts a fine point on it by saying “Look very closely at your personal credit. Banks and other lenders are relying an awful lot on personal credit scores.”