Many small businesses are feeling the impacts of the economic climate significantly. In the face of bank failures, inflation, interest rate hikes, persistent supply chain disruptions, and general economic uncertainty, businesses must prepare and take strategic measures to continue operating and stave off bankruptcy or layoffs.
Right now, businesses need working capital more than ever, but it’s harder for them to get bank loans. Banks are tightening lending standards and raising financing costs. The regional bank failures of late and potential deposit flight are making banks more cautious, which in turn makes it harder for businesses to access funding to expand operations, finance equipment and even make payroll.
It’s crucial for small businesses to be proactive in securing funding right now, to ensure they have the working capital they need for survival. Here are three essential steps to take to weather the current storm.
Take Preemptive Action
With banks tightening their standards, they are not only becoming more discriminating in what businesses they approve for loans but are also looking more closely at their current customers. Instead of waiting for your bank to scale down your line of credit, it’s wise to take preemptive action by exploring alternative lending options. Waiting until you are under pressure from your bank could lead to unnecessary delays and funding gaps that can adversely impact your business.
Before you approach a new lender, take the time to really understand your funding needs so that you can communicate them clearly. This will enable the lender to structure a financing solution tailored to those specific needs. By taking preemptive action, preparing, and exploring available lending options, you can safeguard your financial stability and maintain a steady cash flow.
Find the Right Lender for Funding
Moving to another bank may or may not be the solution. Over the past decade, an increasing number of small businesses have been turning to non-bank lenders for financing. These lenders are often more flexible, capable of providing larger amounts of capital, and equipped with digital platforms that cater to the specific needs of small businesses. If you’re worried about your eligibility for a bank loan, or if you anticipate high costs or a lack of customization for your current business requirements, it’s worth exploring alternative lenders. Since every business has unique needs, it’s crucial to conduct thorough research to find the lender that best suits you.
Here are some tips to help you get started:
- Do your research: Look for experienced and flexible lenders with a deep understanding of your industry and a track record of supporting small businesses in challenging economic climates. Ask your network for recommendations.
- Assess different lenders: Consider their funding products, terms, and the additional benefits they offer, as well as how they align with your business goals and if they have the flexibility to adapt to your evolving needs.
- Plan for a transition: If you anticipate a need to switch lenders, plan early to ensure a smooth transition without funding gaps. By starting the process early, you can avoid unnecessary stress and disruptions to your business operations.
Drive Operational Efficiencies
To thrive in the current economic climate, small businesses must focus on driving operational efficiencies. By tightening control over costs and operating expenses, businesses can improve their working capital position.
Here are some measures to consider:
- Evaluate business operations: Conduct a thorough evaluation of your business processes, identifying areas where efficiency can be improved. Look for opportunities to streamline operations, reduce waste, and optimize resource allocation.
- Control costs: Scrutinize your expenses and identify areas where you can trim unnecessary spending. Negotiate with suppliers for better deals, seek competitive pricing, and explore cost-saving strategies without compromising quality.
- Optimize inventory management: Develop effective inventory management practices to minimize stockouts and excess inventory. This includes leveraging technology to improve demand forecasting, implementing just-in-time inventory systems, and establishing strong relationships with reliable suppliers.
Small businesses face many challenges in today’s economic climate, especially the reduced access to funding. Success during challenging times requires ongoing effort and adaptability. Continuously monitor your financial health, reassess your strategies, and make necessary adjustments as the situation evolves. By staying proactive, seeking reliable lenders, driving operational efficiencies, and maintaining effective communication, you can maximize your chances of weathering the storm and keeping your business afloat.
As Chief Executive Officer of eCapital, Marius Silvasan is a finance industry visionary who has built eCapital into a fast-growing financial technology firm through an ambitious and impactful M&A strategy. With the successful development of a proprietary technology-driven platform, eCapital is transforming financing for small to mid-size companies. Under Marius’ leadership, eCapital has grown into a multi-disciplinary team of over 600 employees which, to date, has helped 30,000+ businesses garner more than $35 billion in financing to fuel their growth.
Funding stock image by Gorodenkoff/Shutterstock
