When there is a crisis, and your business is short on funds. It may be a challenge to stay afloat, and you may have to rely on credit to keep your business moving. Small businesses in comparison to established ones, may go through this challenge as they have not set aside any emergency funds. However, although the credits help your business through a short period. It is important to protect this credit to help you run your business successfully, especially during a financial crisis. As you read on, there are some tips on how you can protect your business during a crisis.
Create multiple lending relationships
When you are a growing small business, it is vital to have established banking relationships. Plus, in a financial crisis, you never know which lender will change their credit appetite for whatever reason that may or may not favor you. Therefore, when you have already developed multiple lending relationships, you can easily open up discussions with other lenders to get an alternative. So when your primary source disappoints you, you have options to consider.
During a crisis, a lot of business needs arise, and it is best when you become transparent with them. Remember, the creditors too, are tightening their underwriting criteria as they are affected as well. So get companies that help build business credit for small businesses to help you improve your business credit score and help your business show lenders, partners, and vendors your creditworthiness. Another way to be transparent is to make payments on time, and in case you have trouble making a payment, you talk to your suppliers. In this way, they can work with you by offering extensions or discounts.
Make small payments
To ensure that you protect your business credit score, ensure you make small payments regularly. In this way, your vendors can know that you are well, and you are trying your best to honor the commitments you had before the crisis.
More so, making these current payments will contribute to keeping your scores up in comparison to when you make no payments for a long time. Another benefit to paying regularly is it will keep you off credit blocks such as cash on delivery, among others.
Develop relationships with local banks
When you compare national banks and local banks, local banks are more forgiving, and these are best if you need to protect your business credit. Thus it is best to create time and try to establish a real and credible relationship and also develop brand equity. By doing this, it will pay off in the long run, for you will have made an impact that is better than the time you spent building the relationship. Thus, real relationships are vital in helping protect your business credit.
Keep in touch with your suppliers
Suppliers and buyers during a crisis are also facing the same credit issues that you could be going through. Therefore, communicating with your supply chain to get solutions that favor both of you is very important. Plus, keeping in touch with lenders, buyers, and suppliers often is a great short term investment that will help you establish reasonable payable terms that later could be useful for your business.
Separate business and personal credit cards
This is important, especially for small business owners, since their personal credit and business credit are connected, and so they need to protect their scores. Therefore, these two should be separate as their usage is different. While during a crisis, when they are connected, you may end up interfering with the credit scores. So, to protect your business credit, choose separate credit cards for your business and personal uses. Plus, it will be useful for business owners worried about overextending on payments.
Consider the source
Since not all types of credit are equal, it is vital to consider the source of your credit. A good credit source gives you control over the repayment terms. During a crisis, it’s best to know how you will pay the debt over time. So instead of seeking sources that offer you big cheques, that will be a challenge to pay back. Opt to choose funding sources that favor your financial plan. Because the crisis will pass, and you do not want to go through the pain of paying a huge amount of debt with accumulated interests for a long time.
Watch for signs of identity theft
During a financial crisis, everyone is trying to hold on to their finances. So if you need to protect your business credit during this time, it is best to stay vigilant about identity theft and fraud charges. The golden rule is that you always monitor your charges. In case you find something suspicious, you act immediately. Also, if your too busy, you can hire someone. After all, cases of fraud and identity theft increase during a global financial crisis, and you should prioritize monitoring your business credit.
Understand your cash flow
Understanding cash flow is important so that you are in a position to manage finances. Also, to know when and how you will pay your debts. Thus, if you are an entrepreneur, it is important to understand the cash flow as by doing so, you can manage issues proactively before they become problems. Hence it is best to be transparent with the amount of cash flow you are getting during the crisis to know the status of your business credit and business in general.
Contact your creditors early
Since the crisis is affecting everyone. Some of the creditors give out guidelines to defer at least three payments if the borrower can contact them and submit a request. Hence, to protect your business credit during a crisis, it is best to communicate with the creditors early enough to know if there are ways laid out to help you through the crisis. This is better than waiting until the issue becomes too challenging, as it may be too late to get a workaround from your lender.