The Credit Outlook for Small Business

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Matthew Parente, president and founder, Aperio Marketing, Austin, Tex.

For 2009, as long as small businesses do apply for credit while their businesses are still in good standing, it will be a relatively easy thing to do. But I'd say that small businesses need to get to it in the next two to three months. If they wait much longer, people are going to start to get much more nervous by the middle of the year—when it will be the darkest before the dawn—and it might not be until the end of the year before credit begins opening up again.

I recently got a line of credit from Capital One (COF), a midsize regional bank in the Southwest. My marketing consulting business is less than a year old, and I wanted to build up a credit history for it. It was fairly easy. I walked in there one day before the Fed cut the rate. I told them my situation and that my business had no credit history and asked how could I build it up. They were very forthcoming with information and advice. It was incredibly easy. I basically got a 3.99% interest rate. Usually, businesses have to wait 18 months before a bank will look at you. I am the guarantor for the credit line, but it is for the business.

Martha Doron, associate professor, School of Accountancy, College of Business at San Diego State University

The traditional way for small businesses to get financing is to go to credit unions and smaller banks, but they will still be seriously looking at the risk to see if it is worth it. The big banks have their own internal problems. I think the government will be more of a player with the Small Business Administration perhaps becoming a direct lender—it is something that is being talked about. (As opposed to going through banks, but they, too, will want to see a plan.)

It has always been the case that banks are not willing to offer money when one needs it the most. New companies looking for cash still have to look at alternative methods—banks do not want take the risk. Companies that are finding good projects are finding some money, and those that want to expand and have a track record will find help.

As harsh as it sounds, those who are caught in this downturn will have to rethink their plan for survival and ask themselves if they are offering a product or service that the market wants. If not, you don't want to be taking out a loan because not only will you owe money but you will lose your business.

Alissa Bayer, owner and founder, Spa Partisan, Austin, Tex.

I think next year it is going to become much more difficult. Even with loans with Small Business Administration backing, banks are still incredibly careful and much less willing to take unnecessary risks.

I had been following the economic news and saw this coming, so I sought out a line of credit at Frost National Bank, where I already have two sizable business loans. I chose that San Antonio bank because it was not involved in derivatives and its investments weren't compromised. I wanted to make sure my line of credit would still be honored. I've heard of other small business owners who have had their credit lines cut completely. I took out the credit line to have a cushion in place as the economy was slowing down, which was happening at a time when my business was getting bigger. I wanted to make sure that I had it in place before I needed it and the credit markets tightened up.

My line of credit will cover half a month's operating expenses. I am looking at what to do if I need more. I am doing my disaster planning—plan B, C, and D. I am looking at taking my money out of my 401(k) and using it to invest in my business as a way to access additional funds.

Perman is a staff writer for BusinessWeek in New York.