I just saw Denise O’Berry’s post “Credit Becoming Available to Small Business Again (Slowly)” on her Small Business Expert blog. Denise knows this territory very well because she focuses a lot of her work on the financial side of small-business management. She says:

It’s been a long, dry spell, but I think things are slowly picking up again.

She also includes a Dun & Bradstreet list of 10 tips for making your business as credit-worthy as possible. That’s about paying on time, minding the reporting and credit rating, and so on.

Remember, banks don’t loan money for ideas or business plans. They’re subject to laws that govern collateral and lending to protect depositors. So whether you get the money depends a whole lot more on the risk you present to the bank than on the bank’s guess of your future prospects. You need assets to match what you borrow.

Also remember, what you borrow from a bank is money you’re going to have to repay. That’s not free. I say you should work your business planning carefully, and make sure it’s a good risk for you, regardless of the bank’s risk, before you apply for the loan at the bank.

But after those words of caution are done, credit lines can be a healthy financial tool when your cash flow is caught in waiting for your business customers to pay, or buying inventory; and when you use commercial bank loans to finance growth, then if the growth happens you haven’t added new investment to dilute your ownership. You’ve leveraged off somebody else’s money.

Just plan well, please, before you do it.

Tim BerryTim Berry

Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.