The most recent government shutdown had a huge impact on the economy, small businesses in particular. For thirty-five days, small and midsize businesses were unable to file requests for loans from the Small Business Administration (SBA) and even loans already in process were frozen. Typically, the SBA manages roughly $200 million worth of loans for small to midsize businesses. A day.
The effects of the shutdown have proven to be devastating for not only business owners, but the workers who depend on them for steady income and the communities they serve. Even though the shutdown has ended and we have moved on to different political predicaments, there is no telling when the next shutdown will be or how long it will last. Small business owners need to start considering creative ways to save money and financing alternatives for their business if they hope to survive any potential shutdown in the future.
The Art of The Deal
All small businesses should maintain good relationships with their vendors, if not for the rules of social etiquette, then for the sake of staying in their good graces for when the hard times come. Should there be another government shutdown that shakes up the economy as much as this last one did, then small businesses and vendors must come to a mutual understanding that some financial compromises must be made in order for both businesses to succeed through the “dry spell.” If you can convince the vendors you work with to extend payment deadlines or break up payments into more manageable increments, the amount of money saved from that deal alone could carry your business through a lengthy shutdown. A direct connection to your suppliers and vendors will prove invaluable during rough patches, especially if you have been a loyal customer who typically remits payment in a timely manner under normal circumstances.
Financially, there are plenty of ways businesses can prepare themselves for hard times, though that doesn’t mean that every option is foolproof or even possible for certain businesses, especially those who are just starting out.
Small businesses typically run on small profit margins, so it may be difficult to put money away, but, putting aside small sums can lead to big benefits in the long run. . For those who need to start saving a rainy day fund, figuring out how much should be put away may seem daunting. Taking a look at your businesses’ historical spending patterns and finding an average net burn rate will make it easier to strategize future spending plans from there. Next, is putting away the funds and searching for areas that costs can be cut – and that will vary from business to business. Get snipping!
Establish and Maintain Business Credit
If you are a newer or veteran business owner and have an individual credit profile, then you likely have a business line of credit. For those out there who have a strong business credit profile, this can be incredibly helpful when the time comes for securing financing during slow periods. Also, when suppliers see a higher credit score, the chances of them extending credit should increase. Again, this is a fine option for business owners with squeaky clean credit scores, but not necessarily a reality for most people. For those with a less than stellar credit score, it’s going to be more difficult to secure financing going down this avenue.
Consider Alternative Financing Options
As mentioned earlier, the SBA shutdown hit small businesses owners hard and left a lot of communities and workers who depend on these businesses in a financial lurch, especially for those who were not able to access capital through tradition lending as a backup to SBA loans.
In these difficult circumstances, owners who have anything less than great business credit scores or need capital to cover unforeseen costs immediately, may want to consider other financing options. Alternative lending, for example, is an excellent option.
While the Small Business Administration offers loans at very affordable rates and longer terms, there is often a long line of other businesses who are in the same boat and seeking assistance- which ultimately leads to an uncertain future with not much time to react accordingly. Small businesses that are seeking help from the SBA or traditional lenders are typically looking to assess working capital to cover immediate needs, and quickly. In these timely situations, alternative lending can act as a bridge for SBA and traditional loans. What ultimately sets alternative lenders apart from the other options is that they can offer automation and speed to clients who need immediate funds. Both qualities that are of vital importance for when uncertain times come a-knockin’.
Yes, this may seem like the most obvious tip, but it bears mentioning. The best way to protect your business from another government shutdown is by voting for representatives who will look out for the interests of small business owners and the communities they serve.
The most important things to take from all of this, is to strategize your budget, keep open lines of communication with your vendors and consider every financing option that makes sense for your business. If you follow those rules, your business should be able to weather any storm.
Sam Schapiro, CEO, Fundomate