It is widely recognized that micro businesses typically finance their operations with credit cards.  In years past this was not only acceptable, it was also the easiest and quickest way to obtain financing for equipment, inventory, expansion, and for boosting cash-flow.

It may still be easy for many small business owners to obtain credit using this method, but now this quick credit comes with a very big risk.  The credit card companies are no longer following the old rules of operation.  Typically the old rules said that if you kept within your credit limit, paid your credit card payments on time, and weren’t overloaded with debt, your credit limit would increase annually and your interest rate would remain relatively stable.  You could often renegotiate that rate to get a more favorable lower rate after proving your credit worthiness.

This is no longer true.  Because the rules are changing, and because you are often notified in a document that requires a magnifying glass to read, you may find yourself strapped with a high interest rate when you can least afford to pay that rate.  Card holders are being told their interest rates are doubling or tripling and the card companies aren’t saying how they decide who gets the higher rates or when they will increase.

To survive this tight credit period and uncertain credit card rates, business owners will be smart to nurture a relationship with their local bank or credit union.  Having a good handle on your spending and knowing how to present your business’ financial picture to your lender will help you obtain a credit-line now, before you need it. 

• Learn how to read and understand your balance sheet and income statement
• Ask your tax preparer to explain any differences between your profit & loss statement and your tax return - the lender will want to know
• Be prepared to fully describe your business to the lender and show your knowledge and expertise in your field to reassure the lender that you know your business and are good at what you do.
• Prepare a two-year budget that corresponds to your profit & loss statement
• Be prepared to show how you intend to repay the loan

By working closely with your local lenders you will not only have fewer surprises, you will also have a financial partner who is interested in you and in your success.  That’s something you can never get from a large credit card company.