Small Businesses and the Credit Crisis

How are small businesses weathering the credit crisis -practicing cash management and maintaining cash flow? What does this mean for your business? It is now more important than ever to keep an eye on working capital for business needs. Below is some guidance for now and the future.

1) Those businesses that have built and now maintain strong relationships with their respective bankers or other financing entity initially encountered few, if any problems, at the beginning of the credit crunch. However, as banks encountered more difficulties with access to capital and their own cash flow, a number of these business customers have also experienced some issues with their bank. Yet, it is in times like these that a strong relationship and a good communication program eliminates surprises and helps enable companies to weather their internal ups and downs or their lender's tightening standards.

 

2) Yes, it is harder for small companies to obtain bank loans. Many small banks, which often finance residential builders, have been hit hard by the drop off in residential construction and sales and some large banks have encountered serious issues from bad mortgages and the resulting impact on the financial markets. As a result, cash flow has ebbed and credit standards have risen. The good news is companies that qualified easily before, still qualify but at lower amounts. And the alternative sources for cash flow - accounts receivable financing, equipment financing, bartering, economic development loans, etc. - are still plentiful if people know where to look.

 

3) In general, B2B businesses outside of directly impacted industries (i.e., do not serve mortgage brokers or residential builders) are experiencing less pain that B2C. Consumers are spending less but companies are still spending although how much they spend and where is shifting. Companies that traditionally focus on great service for good value are doing better than those that focus on being the low cost provider to the exclusion of anything else.

4) Businesses can weather a downturn if they focus on tightening up their fiscal and other operations, practicing strong cash management, strengthening ties to and seeking out various financing sources, and providing strong customer service and support. All of this will ensure the company has sufficient cash flow - enough working capital for its business.