U.S Borrowing Mess and Standard and Poor’s Negative Credit Outlook

The western front of the United States Capitol...

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What does one of the most well known credit rating agencies believe is important when evaluating a borrower?

Consider the opinion of Standard and Poor’s about The United States’ creditworthiness and how it changed today from stable to a negative outlook as reported in wsj.com.  The rating agency considers these borrower qualities in making their rating decision:

1. Flexibility and Diversity in Business:  Can you as a business borrower adapt to changing economic and market conditions or are you cemented in one market, one product, one region?  As a business borrower do you have multiple sources of revenue streams or a single concentration of revenue risk?  The higher quality borrower will have multiple revenue streams and the ability to adapt to changing market conditions.

The United States economy is highly diverse and flexible which gives support to the Standard and Poor’s AAA credit rating.  How does your business measure up to this test?

The same logic can apply to consumer borrowing.  As a consumer, are you employed in an industry that has poor prospects going forward?  Do you have alternative revenue streams such as consulting or side line businesses that you develop in your off-the-clock time?  Could you adapt to the termination of your primary income stream?  Do you have the flexibility to quickly generate new revenue because you have current skills training?

2.  Unique external liquidity:  The U.S has a globally recognized currency which gives it unique external liquidity in the currency marketplace.  If the standard global currency changed to the Euro, for example, the U.S. would lose this key characteristic and its credit rating would be impacted.  Do you have a competitive business advantage that opens doors in the marketplace that are closed to others?  Does your company have high barriers to entry from competitors which gives you unique leverage?  Uniqueness is a revenue safety barrier and can make your business a more attractive credit risk.

How will you enhance your flexibility, diversity and uniqueness to make you or your business a more attractive borrower?


About Michael Shelton

Your Business Coach Facilitating Delegation and Work Group Engagement Michael Shelton has over twenty-five years of business and military accomplishments, including extensive experience with one of the largest, publicly traded real estate investment trusts (REIT). He is a qualified business coach with assignments in cross-functional work group management, strategic planning, unit leadership, joint venture acquisitions, executive education, mentoring, training and merger integration. Michael has accumulated best practices for building committed work groups from more than $4 billion of capital markets transactions and commercial property development. He served as a commissioned officer and helicopter pilot in the U.S. Army, and earned his MBA from The University of Arizona. Michael has served as a major conference panelist and is the author of Cash Flow Rich, Winning Ways to Evaluate and Finance Real Estate. Today, he helps business owners get more work group engagement as President and CEO of Shelton Business Services, LLC in Scottsdale, Arizona. Disclaimer: I don't offer investment, legal or tax advice. Talk to your broker, accountant or lawyer for investment, tax and legal help. I might own stock in the companies I mention on-line. My posts, tweets and other on-line activity are my personal thoughts and don't represent my employer or company.
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