The credit crisis is in danger of preventing entrepreneurs from being approved for bank loans at the crucial start-up phase of their businesses

Just how much do we want to talk ourselves into a recession? At the beginning of Gordon Brown's premiership, the answer appeared to be, "not much". Economists and commentators agreed that everything looked basically OK and the sub-prime crisis was something that only the most technical of financial economists needed to worry about. The economy was dull, just as it had been for the last 10 years. Business as usual.

How quickly things change. By September, the Ernst & Young ITEM Club was predicting a possible downturn in growth of about one per cent and by the beginning of December all but the wild optimists (probably those with no mortgage) were beginning to realise that the impact on the real economy was likely to be quite severe because of tightening in the home-loans market.

This, of course, seems particularly tough for the usual suspects: first-time buyers and young families who want to improve their homes. But how much will it actually affect the business base?

It's here that the story starts to get personal. I am trying to grow a business with my husband. As we reached the point where some serious bills needed to be paid, we did what 55 per cent of female and 64 per cent of male entrepreneurs do. We turned to our bank.

The amount we needed for investment was somewhat larger than an overdraft and, as we represent a new firm with little track record, the bank was not keen to make any type of loan secured against the business.
So we looked to the other source of equity: our house. Inevitably, this made for some interesting dinner-table conversations between the two of us: do we really want to take the risk? Are we sure this is the right way of funding the business? Have we got enough cardboard boxes and newspapers in the garage for when it all falls through? The entrepreneurial spirit thrives within both of us, so we arranged the meeting with our bank to talk everything through.

My husband has been running a business for 10 years and I have, until the past eight months, had a stable, salaried income. We have never defaulted against any debt. We have been with our bank for 20 years. There is plenty of equity in our property to survive a downturn in prices—and a downturn didn't really look likely in the south-east at the time. In short, the bank agreed with our own assessment that we were "prime" rather than "sub-prime" borrowers.

Wind forward to the beginning of December and the bill still loomed, but the bank had not yet approved our application. Because I was no longer on a salary (although my earning forecasts were identical), the bank had decided we were not good prospects after all.

So it is not just the domestic finances of the country that are affected. For entrepreneurs like us, at the start-up phase of a business—too early for formal investment but at the stage where they need a real injection of working cash—the credit crunch is not about the rate at which the business can grow but whether or not it will be able to grow at all.

One piece of advice for anyone else in this position: consult your accountant. The bank will not give any time to cashflow forecasts from entrepreneurs, who are notoriously over-optimistic. But if you discuss your business plan and forecasts with your accountant and can demonstrate a clear pipeline with probabilities of success attached, he or she can put together a credible statement of income and earnings potential.
Failing that, there's always the credit card. Fifteen per cent of entrepreneurs do what we've just done and tot up the plastic credit available to them. I have lost count of the number who have admitted that this is how they keep themselves going through the hard times.

I would be the last person to tell the average Director reader to take this approach, except by necessity, but there is one long-term advantage. So long as you, the eternally optimistic entrepreneur, are halfway right in your assumptions, you should be able to pay off a credit card more quickly than a mortgage.

Rebecca Harding is managing partner of Delta Economics and is running the World Entrepreneurship Summit 2008: www.wes08.net