Small business owners have spent years battling the effects of the COVID-19 pandemic, but now inflation is throwing a wrench into the recovery process. According to his Second Quarter 2022 Small Business Index from the U.S. Chamber of Commerce, four-fifths of businesses report that higher prices have had a significant impact on their operations.
Businesses have also addressed inflation concerns in a variety of ways, with 46% of business owners surveyed taking out loans to cover rising costs, according to the Q2 2022 index. It was 39% in the first quarter.
If you’re considering a business loan to combat inflation, here are three tips.
1. Understand your financial situation
Getting a small business loan may seem like a logical way to deal with inflation problems, such as rising expenses and cash flow gaps.
But before you start raising money, you should ask yourself: How can a potential loan benefit my business now and in 6 months?
If you’re considering a business loan, you need to know exactly how much cash goes in and out of your business each month, core operating costs, seasonal earnings trends, and other factors that affect cash flow. Zoe Newman, US managing director of corporate credit cards for his provider Capital on Tap, said in an email:
Understanding finances can help you anticipate the potential impact of loan funding and repayments on your business, Neumann said.
This assessment can also determine whether refinancing the debt is a viable option. His CEO and co-founder of BoeFly, Mike Rozman, said in an email: BoeFly is a fintech company specializing in franchise finance.
If you can refinance your variable rate loan with a fixed rate loan, you can protect your business from future interest rate fluctuations.
look: 4 Ways Small Businesses Can Prepare for a Recession
2. Find a suitable lender
With the Federal Reserve raising interest rates in 2022, banks are tightening requirements for business loans. To access financing, small business owners may need to compare lenders to find suitable options.
Search for relevant financial institutions. “The more you do business with a financial institution, the more likely they are to know your company and work with you to find the best solution,” says small business financial planners. said Sam Brownell, founder of Stratus Wealth Advisors. The company said in his email.
Brownell also recommends considering not only large financial institutions, but also local or regional banks, credit unions, or other lenders that specialize in corporate clients.
Interest costs may not change much, he said, but lenders who know small businesses and help them solve their problems, rather than just selling products, are valuable long-term partners. rice field.
Similarly, you can look into Community Development Finance Institutions (CDFIs). These organizations typically focus on lending to traditionally underserved businesses and businesses in low-income communities. CDFIs often offer business development services.
Related: Inflation hits small businesses hardest in these cities and states
3. Business review and future plans
Small business owners, whether they take out loans or not, can employ additional financial strategies to combat inflation.
You can rethink how your business operates and determine if there are opportunities to increase efficiency and reduce costs. Think about the areas where your company is most successful. And then you can consider if there’s a way to build on your success or if there’s a way to create something new.
Newman says that economic turbulence always presents opportunities for innovation.
“Most businesses are grappling with the problem of trying to make ends meet on a tight budget, but those that can pivot quickly to identify and address new customer needs arising from a changing climate have the potential to grow. There is a real chance,” she said. .
Additionally, it is beneficial for business owners to work with a chartered accountant or another financial professional to update their records and discuss future financial plans.
look: Small business owners worry about a recession, but many are confident they will weather it.this is the reason
If you are applying for a business loan, these professionals can help you get organized and prepare a strong application. And even if you’re not seeking financing, we can provide advice on the best financial strategies to save money and increase your bottom line, and help your business grow better to meet other financial challenges that may arise. You can put it in a good position.
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Randa Kriss writes for NerdWallet. Email: rkriss@nerdwallet.com.
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