Recent surveys show that the U.S. economy is in a period of tighter small business credit than before the Great Recession.

Despite the lending challenges, Tom Gazaway says that qualified small business owners are getting approved for many different forms of financing to start, grow and build their businesses.

Gazaway should know. He is president of Hawkeye Management, a firm that specializes in unsecured business credit lines for small business owners.

“Some entrepreneurs think that the only goal of borrowing is to get approved or just to have some form of financing they can use. But it’s bigger than that,” he writes in an Internet post. “It’s actually common for businesses to grow and then to need additional capital to propel themselves to the next level.”

Gazaway believes that the following are the four biggest dangers of borrowing money the wrong way when building a business:

n Allowing lenders to take too much collateral with a loan.

“This one can be a bit difficult if you’re not familiar with choosing the right bank to work with,” Gazaway says.

He suggests asking yourself questions like: Can you borrow the money you need without pledging any collateral to the bank? What is a reasonable collateral request based on the loan you’re requesting?

n Not being committed to maintaining (or improving) your personal credit.

Gazaway notes that although bank financing is challenging to get, he believes that it is always going to be the cheapest form of funding your business.

“There are ‘alternative’ financing options galore but it should always be your goal to get your business to be ‘bankable.’ In other words, you want to be able to obtain your loans and lines of credit from a bank,” he says.

As a former small business owner and banker, I can tell you from both sides of the equation that your personal credit is a huge factor in the underwriting process. If you have great credit, congratulations and keep it up. If your credit needs improvement, then get off your duff and do something about it.

And, as Gazaway points out, never use your personal credit cards for business expenses.

“This is possibly the biggest credit mistake made by small business owners,” he says.

n Not knowing the impact of your loan on your budget and cash flow.

Gazaway believes that there are two important factors here: Use the funding you obtain for RGA (revenue-generating activities), and keep in mind that cash flow is usually more important than interest rates.

n Choosing the wrong loan for your purpose.

“Do you need a loan or a line of credit? Based on your credit, business, industry, collateral, revenue, profit, etc., do you know what your borrowing options are?” Gazaway asks. “If you understand what your options are, you can choose the loan solution that’s best for you.”

The bottom line for Gazaway? Knowledge and execution.

“Know your borrowing options and then execute. Period,” he says. “Get your funding, use it for RGA, and keep living the dream.”

Contact Ted M. Natt Jr. at tnatt@thepilot.com.