U.S. debt ceiling and small business borrowing – is it the same?

It was hardly possible to go a day over the past few months without hearing about the squabbles in Washington D.C. regarding the debt ceiling and the budget deficit.  Thankfully the issues have been resolved, albeit temporarily.  I thought I would take a moment to draw the corollaries that this debate has with the small business owner’s daily business management activities.

When the U.S. government needs money to cover its expenses, it can go to the open market and sell debt instruments (mostly notes and bonds) to individuals, organizations and foreign governments.  The U.S. has a very strong credit rating, which allows the government to sell these notes and bonds at a relatively low interest rate (compared to other governments and corporations).   This low interest rate makes the activity of selling debt, also known as borrowing money, lower cost to the tax payer—who is ultimately responsible for paying off these federal debts.

At the core of the D.C. debate was whether the government should allow itself to borrow more money to cover its deficits.   One of the direct impacts of this decision is whether the U.S. will continue to be rated well by the credit rating organizations.  A drop in this credit rating means that the government will have to pay higher interest rates to the people, companies and foreign governments that want to lend money to the U.S.  These higher interest rates become a bigger burden on the U.S. tax payer.

This is not that dissimilar to the daily activities of a small business owner, who must manage their cash flow to cover all of their costs.  Paying bills on time impacts their business’s credit rating in virtually the same way that the U.S. government’s actions impact its credit rating.

The credit rating for the U.S. government’s debt is issued by the credit rating agencies such as Moody’s, S&P and Fitch.  The credit ratings for businesses are issued by organizations like Experian.  Just as the Washington debate could have had cost implications to the U.S. borrowing program, the payment activities of small business owners can directly impact their access to affordable financing for their business.  Companies with high credit scores generally receive more favorable financing terms than those with lower credit scores.   These favorable financing terms result in lower borrowing costs to the business, leaving more profit for the business owner.

To learn more about commercial credit risk, please visit