Unprecedented times often call for unprecedented measures, and the pandemic of the last two years has been no exception. Many businesses—especially smaller businesses—have had to take extraordinary steps, with many opting to go into debt or max out credit cards to make ends meet, causing damage to their credit scores in the process.
There are better ways for business owners to keep operations running during a crisis than taking on potentially crippling debt or negatively impacting their credit. Below, 15 Forbes Finance Council members share smart ways for business owners to manage finances in a crisis situation without causing long-term damage to their business credit.
1. Build Your Credit Any Way You Can
Acquire credit when you can get it, even if you do not need it. Continue to do this every year, and build more and more credit with any and all institutions willing to help. Hard money loans should be a last resort. You may have family members who are able to access low interest rates through a bank. You could agree to put together an intrafamily loan with a contract and pay a higher rate to a family member. – Christopher Drake, Drake Consulting Group, LLC
2. Establish A Line Of Credit Before You Need It
Small-business borrowing can be tough. Lenders typically require personal guarantees and heavy collateral for any loans. Business owners who default on a loan could lose their savings or homes. Develop a credit plan during the good times. Establish a line of credit or take out a fixed-rate loan. Use the LOC sparingly, and regularly pay it off or down. Then it will be there for security in a crisis. – Glenn Hopper, Sandline Global
3. Don’t Over-Leverage During The Good Times
The best way to protect business credit during a crisis is to make sure your organization isn’t over-leveraged during the good times. The right tools and advice can help you better understand when your organization is becoming overburdened. And if you find that your business is in trouble, reach out to creditors as soon as possible. – Bill Alena, Dating Group
4. Ensure Any Subsidiaries Have Intact Business Credit
Most businesses have some type of sister company or subsidiary. Always ensure the business credit under your smaller entity is intact as well, because this will enable the main business to have a backup credit plan. Although you cannot do a balance transfer between the two entities, you can utilize the funds from the subsidiary’s credit card or revolving account. – Antoine Sallis, Pacc 10 Enterprise
5. Always Pay Your Bills On Time
Make your payments on time, even if this means making the minimum payments necessary to avoid being late. If you can’t make the minimum payments you owe, reach out to your vendors and work with them to develop a payment plan that works with your current financial cash flow. Most vendors will work with you if you are up front with them and come with a plan of action that gets them paid over time. – Joseph Orseno, Tiltify
6. Contact Creditors As Soon As Possible
Be up front and transparent with your creditors; if they are good business partners, they will be willing to work with you during hard times. It’s always better to be honest and have a conversation with creditors during tough times and try to work out an arrangement instead of going silent and missing payments. Often, this can help you to avoid negative credit reporting. – Sean Frank, Cloud Equity Group
7. Renegotiate Payment Terms
One way to protect business credit in a crisis is to negotiate terms with creditors. Interestingly, lenders and creditors depend on borrowers to stay afloat themselves. They are more lenient about repayment terms and credit extensions during a crisis as long as goodwill is demonstrated on the borrower’s side. – Charles Owo, Groupe SEB
8. Talk To The Bank
Every business and each crisis are nuanced and different. But for many businesses that are enduring problems such as those caused by the pandemic, the most immediate step is to talk to your bank. If you have or need credit, let the bank know the details—it is in their interest too. Their loans to you are investments that they will want to help protect. – Dr. Philip Fischer, Micro Macro Infinity
9. Keep Lines Of Communication Open
Maintain an open dialogue with your lender. It is much harder to watch someone fail in person. Most lenders are merely looking for useful information to pass along to their investment committees. Make it easy for them to do so and you will have a long-term partner beyond the current financial crisis! – Marcel Bens, Emil Capital Partners
10. Consider Vendor Financing
Vendor financing is when a customer borrows from the vendor who provides the products or services the customer purchases. If there is a good business relationship in place, this could help supplement traditional loans and lines of credit. The vendor could accept payments over time, plus interest, and the customer has a better cash flow to pay other vendors on time. – Dave Sackett, Visibility Corporation
11. Look Into New Credit Lines If The Setback Is Temporary
Make certain the most important expenses, such as rent, staff salaries and equipment, get paid first. Then, go to your bank and see if they will extend a line of credit to your business, or even consider a home equity loan. Dealing with high interest rates is still better than not paying the bills. Remember, all of the above assumes that you’re just having a temporary setback and that the business will come back. – Simon Singer, The Center For Tax Strategies and Resources
12. Have A Detailed Understanding Of Your Cash Flow
A detailed understanding of their cash flow and all of its nuances can help business leaders protect their company’s credit during a crisis. By actively overseeing your company’s cash flow, you can identify potential issues related to your business credit and address them before they affect other areas of the business. – Mara Garcia, Phonexa Holdings, LLC
13. Look For New Ways To Manage Cash Flow
No matter the economic cycle, cash flow will always remain one of the key metrics businesses must focus on. When traditional credit from banks dries up, businesses must innovate the ways they collect and pay their bills. One of the most effective ways of managing cash flow in these instances is to have strong working relationships with your vendors and try to negotiate for longer terms. – Adam Mortanian, PACT Capital Inc.
14. Regularly Assess Business Needs
The No. 1 way to protect business credit is to regularly assess business needs before a crisis or as soon as possible during or after a crisis. Assess what you can and cannot pay and how those items will affect your business in the short and long terms. During a crisis, all money should be allocated toward essential expenses. – Jared Weitz, United Capital Source Inc.
15. Build A Cash Reserve During Good Times
The best way to protect business credit in a crisis is to not need credit at all. During good times, dedicate a portion of your revenue to capital reserves. Build a reserve of six to 12 months, if possible. – Thomas Johnson, Southport Marketing, Inc.