For small business owners cash flow is equivalent to a blood flow. If it stops or is even constricted it can wreak havoc on your body and your business. Still the reality is every business runs into cash flow problems once in a while. A large customer delays a payment for few days and you will be scrambling to meet the payroll that is coming up. You may need additional cash flow if you are looking to expand the business with new products or locations. No matter how you come across the need for additional cash you need to have a plan in place to meet emergency cash needs.
If you have not paid much attention to business credit the time to do it is now. For small business owners, business credit is like a lifeline, an insurance against unexpected expenses that might come out of nowhere. Business credit gives you peace of mind with the knowledge that you will not have to scramble to borrow money on a short notice to meet emergency financial obligation.
Look no further than what Ford did before the great recession of 2009 hit the world. Ford had established a huge line of credit by mortgaging pretty much everything they had, including their namesake blue logo! When recession did arise and all the banks shut their doors to business loans Ford could borrow from the line of credit and continue investing for the future. When both, GM and Chrysler, filed for bankruptcy protection, Ford was not only able to avoid it, but position itself to take advantage of upturn.
We have discussed in the past how challenging the last 2 years have been for small business owners who want to borrow money to start or expand their business. The Great Recession of the century has made banks jittery about taking on risk and lending money to small businesses. We have also mentioned some creative ways you can use to start business with little money.
Recently we came across a new startup that aims to help small business owners find lenders who are willing to give them money. The startup is called Lendio The goal of this web start up is to “help small business owners find right business loans in a matter of minutes.” According to their web site they can do this with a simple 3-step process – 1) Business owners answer simple questions about themselves and their business. 2) Lendio looks for a match between your loan needs and over 3,000 banks and other lenders. 3) Business owners apply to multiple lenders on the web site and get status updates.
I came across this absurd news from Wall Street Journal yesterday about how small business owners are having problems getting financing from banks. To summarize, WSJ mentioned that many small business owners are denied loan applications for starting new business or business expansion. In some cases the business already had committed orders from customers and only needed money to ramp up production or hiring to start the work.
However, in almost all cases their applications were denied on the basis that they did not have sufficient cash flow to cover the payment. In the past, the business owners used to put business assets such as account receivables, inventory, equipments, etc. as collateral to get the loan. The valuation on these assets has declined in the recent downturn and is not sufficient to cover the loan payment.