By: Seomul Evans
Submitted: 2009-03-27 03:19:30 | Word Count: 603
If you’re a small business owner, you’re all too aware of the current economic crisis and how it’s affecting small businesses all over the country. The most profound effect of the economic crisis is in the availability of credit. The news is grim, but it doesn’t have to paralyze your business.
Here are 5 ways to deal with the credit crisis and its effect on your small business.
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1. Diversify Your Borrowing. Big banks have really gotten themselves into a quandary with messy mortgages, but local banks have primarily remained outside of the mortgage disaster. Try visiting community banks to find out what they have to offer you. Many local banks are highly interested in lending to companies that keep money within the community. Peer to peer borrowing is another option that you might consider, and is attractive to private lenders for the same reason that community banks are interested in lending to businesses who will keep money within the local area.
2. Offer Less Credit. You’ll be in a better position to deal with the credit crisis yourself if you cut back on the capital that you need to run your business. This necessarily means that you will be able to conserve your capital if you offer less trade credit for your customers. Another option is to reduce your accounts receivable by reducing amount of time you give your customers to pay you, and by offering incentives to pay you early.
3. Cut Back. This is a common sense idea, but the less capital you need to run your business, the less credit you require. This is a really a great time for you to step back and get a big picture view of your business. What small changes can you make that will allow you to cut back on the amount you need to borrow? Some ideas include leasing your equipment instead of borrowing money to purchase it. You might also consider utilizing sales representatives who work on commission instead of hiring salaried employees.
4. Raise Equity. Since the debt markets are more immediately effected by the credit crisis, try other sources of equity such as venture capitalists, friends, family, angels, and strategic partners. And if that doesn’t work, you might try getting equity from your venture’s founding team. This necessarily means that you’ll be less diversified since you’re putting your own capital into your own business, but you’ll also avoid having to ask lenders who aren’t lending to give you money. A final option is to fund your business using retained earnings rather than funding your business through borrowed money.
5. Sell, Sell, Sell. Sell any valuable assets that your business might have. Selling your equipment and leasing it back is an effective way to avoid borrowing more money. And making the switch to leasing from owning might give you enough cash to keep your business going.
The obvious solution to the credit crisis is to wait it out. Things will eventually come back around and the future won’t look quite so bleak. But the bottom line is that you need to keep your business going until the future starts to look a little brighter. These 5 steps are just a few of the ways you can cope with the credit crisis without having to close up shop completely. You probably have a few of your own tricks up your sleeve. The most important thing is to be creative and to do whatever it takes to keep your business running. It’s your passion and your life, so keep it alive until change comes along!
