The credit clampdown and continued turmoil in the financial markets makes this an important time for entrepreneurs and small-business owners to ask what they can do to improve their credit-worthiness.

Cincy put the question to local business bankers, whose answers went well beyond simply having a solid business plan and references.

That’s because the business of lending has changed, even within the past six months, and prospective borrowers would do well to educate themselves on the rapid changes, says John Marrocco, Cincinnati market president for First Financial Bancorp.

“The bank loan market has become much more restrictive, due to losses incurred by banks and the impact that has had on bank’s capital,” which, in turn, has affected banks’ ability to extend loans, says James Fishell, CEO of CBank. “Banks have tightened their lending standards to avoid future losses, and, therefore, pricing for loans (and structuring) has changed, in particular over the past four months.”

“Right now, things are changing overnight,” Marrocco says, advising borrowers to develop “a good grasp of what’s going on in the market” by talking to bankers, lawyers, accountants and business associates who have been through the process. Doing so will help borrowers have more realistic expectations from banks. It can also help them prepare for questions they may not expect.

Borrowers should come prepared to share detailed information on their businesses, and to consider the prospect of getting less from the bank and ponying up more capital themselves, through cash equity and personal guarantees.

“For start-ups, it is extraordinarily difficult to get financing” at this time from banks, although most small businesses are not typically launched on bank financing, Fishell says. For small businesses seeking commercial credit, a track record of profitability will be a necessity, he adds.

“It’s critical to have good information (and show) comprehensive financial planning on budgets, forecasts, working capital and cash flow,” Marrocco says. “If you come in well-prepared, (you) know what’s going on in the market, and you’ve got detailed information with evidence and proof, you’re going to get a quicker response.”

Those planning to buy a company should have a good set of historical financial statements going back at least three years, in addition to recent figures, he advises.

“For ABC company, you’ll need 2007, 2006 and 2005 information, but (lenders) will need to see July numbers, too,” Marrocco says. “That up-to-date information is really critical.”

Borrowers’ business plans should be able to show positive revenue streams, especially in the businesses and sectors bankers know to be hurting in this economy, says Thomas Mueller, district director of the Columbus region of the U.S. Small Business Administration.

To determine credit-worthiness, banks look not only at the businesses’ track record, but also at the borrower’s personal credit score to ensure their report is correct, says Ken Klein, deputy district director of the SBA’s Columbus region.

If the score is low, borrowers can work with their local consumer credit counseling service to improve it. One way to do that is to take out smaller loans and pay them back, Klein says.

Banks’ credit concerns may be assuaged with the addition of an SBA loan guarantee. When a borrower is approved for such an advance, a bank is assured it will be paid back, up to 85 percent of the amount of the loan.

The SBA guarantee offerings include the SBA 504 program, made for building or equipment purchase advances. In this arrangement, 504 program funding usually includes 10 percent equity from the borrower, along with a loan of at least 50 percent of the total amount from a private-sector lender and a loan provided by a Certified Development Company — a nonprofit corporation set up by the SBA to contribute to the economic development of its community — in an amount of up to 40 percent, which is funded by a fully guaranteed SBA note and which holds a second lien on the acquired real estate, machinery or equipment.

These 504 loans are targeted to small businesses that need financing for brick and mortar stores or physical plants.

To be eligible, the business must be for-profit and not have a tangible net worth in excess of $7.5 million. It also must not have an average net income in excess of $2.5 million after taxes for the preceding two years. Loans are not permitted for speculation or investment in rental real estate.

“Clearly, the SBA guarantee is a strong encouragement for banks to make a loan,” Mueller says.

Another way to improve a personal credit score is to move any business debt off personal credit accounts, says Don Stock, the head of business banking for PNC Bank in Greater Cincinnati and Northern Kentucky.

“If the person has credit cards charged up with business debt, they should try to move that debt off the credit cards and refinance it,” Stock says, adding that strong record-keeping is especially important in such cases to prove it’s business debt.

Putting lines of credit in the business’s name will let the business build a track record and help with cash flow, Stock says. Lines of credit also may create money-saving opportunities at this time, when suppliers are offering discounts to sell off inventory.

Stock suggests companies that have kept their own books should hire CPAs, which may allow them to take advantage of tax laws that can boost their bottom lines and ultimately help them retain as much earnings as they can. The resulting boost in a company’s equity position can only help when seeking additional financing, he says.

Banks also will want to see the business’s credit score, Stock says, so potential borrowers should get a copy of their credit rating reports from Dun & Bradstreet, an agency that provides a global commercial database of more than 130 million business records. Sometimes, small business owners mistakenly undervalue this report, but Stock believes they should pay attention to it and manage it as an important resource for customers, suppliers and banks.

“The smaller (the companies) are, the more important (the report), because they are not as well-known,” Stock says, adding that the businesses should pay special attention to their lease agreements because leasing companies and banks report with regularity to D&B.

Borrowers also should work to make themselves attractive potential clients by consolidating all their accounts into the institution from which they’re seeking commercial credit, Fishell adds. “It’s another way of making the relationship with the bank as meaningful as possible, which is very important in these challenging times,” he says.

When a company is experiencing temporary problems, a frank and detailed communication with its lender is in order, Fishell says. “It’s important for small-business owners to be proactive in communicating with their bank,” Fishell says. “They should say, ‘Here’s the status of the business; here’s what I’m doing to manage it; this is the outcome I expect; this is what the role (of the bank could be in resolving the issue).”

On the other hand, if borrowers get the sense that their bank is unresponsive, or that their accounts are unimportant and the bank is preoccupied with its own problems or management changes and turnover, they should take it as a sign to move on, Fishell says.

Although this period is challenging, it is not without its opportunities for those in position to take advantage.

“There are businesses that will prevail,” Marrocco says.