As a business owner, you’re no stranger to economic ups and downs and the financial difficulties that come with it. You can prepare your business for a recession in a few ways.
CNBC recently reported that with inflation and the rising cost of goods and gas, there is an over 50% chance of us being in a recession within 16 months.
As well, 8 out of ten small business owners across many industries surveyed by CNBC said they expect a recession to happen later this year.
Although we cannot know for certain if a recession will indeed occur, or how long it will last, we can at best prepare ourselves by understanding our financing options, in case they’re needed.
How do loans work during a recession?
During a long lasting and widespread economic downturn, known as a recession, there are a few things that usually happen:
- Lowered Interest Rates: The Federal Reserve usually lowers the national interest rate on loans and mortgages. This is to stimulate the economy by making it more affordable to borrow money and keep businesses running.
- Increased Credit Requirments for Loans: Lenders tend to be more cautious when lending during a recession. Because many businesses are struggling, a better credit score can help lenders feel safer in lending your business money and satisfy their assurance that they will be repaid.
- Lenders Lend Less: In general, most banks will simply lend less. It may be due to the risk of lending during unstable times. Banks are more likely to approve loans for bigger, more established businesses with assets for collateral, and a long history of profitability.
5 reasons to get a business loan now
While every business is affected by a recession differently, it is small businesses that feel the brunt of a financial downturn. While bigger companies can afford to swallow bigger losses to retain customers, small businesses essentially feel the same sting as consumers.
A business loan can help small businesses in a variety of ways to help them prepare and stay afloat during a recession:
1. Gain Cash Flexibility
A business line of credit allows for easier adaptability when times are slow. You can use a business line of credit to access the cash you need, and only the amount you need, without dipping into your business cash flow.
You can use a line of credit to:
- Order new products or change your inventory
- Prepare for an upcoming busy season
- Satisfy customer demand
- Keep your business operations running smoothly
- Pay your bills, even when your accounts receivable are delayed
2. Invest and Grow Your Business
Investing in your business is always a good idea. Particularly when hard times loom, being on top of your game and ahead of the competition gives your business an edge and retains customers. This will help your business weather the storms.
A Term Loan offers cash upfront so you take advantage of exciting opportunities to grow your business. Unlike a line of credit, with a term loan, you borrow a set amount of money for a set period of time, then make monthly repayments.
Use a term loan to improve your business in many ways:
- Renovate your shop
- Invest in new software to better automate operations or build a website
- Upgrade equipment
- Implement better customer service options
- Purchase bulk inventory
- Expand by opening a new location
- Launch a marketing campaign
3. Capitalize on the Lower Interest Rates
During inflation, the fed tends to hike up interest rates, and the loan interest rates often follow close behind. This essentially makes it more expensive for people to borrow and repay a loan.
Applying for lines of credit earlier can help you lock in a more palatable interest rate and save you money on interest payments in the long run, while also providing the above-mentioned benefit of having flexible access to cash flow.
4. Reorganize and Consolidate Debt
Refinancing, or taking a new loan to pay off an old one, can help you take advantage of the interest rates the way they are now before times get desperate and you need a loan later at a higher rate. You can also consolidate loans by combining all your payments into one to help you better budget for and manage your repayments.
Economically tumultuous times are chaotic for many business owners. Debt consolidation can help ease the headache of trying to keep track of all your debts and ensure you can make that one payment needed on time.
5. Grow Your Credit Score
With loan requirements getting stricter as a recession comes, having a good credit score can help you get approved faster and easier down the line, and may even help you get better terms.
The best way to improve and raise your credit score is to ensure that you are making all your payments on time, not overusing your credit cards, and updating your info with credit bureaus.
Other ideas to prepare your business for a recession
With hard times already upon us, and the uncertainty of what’s to come, preparing your business now will ensure that you can come out the other side – maybe with even less competition than you have now!
Some ways to prepare your business for a recession are:
Put the Customer First: Keeping your customers happy will ensure that you retain the most valuable part of your success. Invest in improving your customers’ experience by sending a survey, offering a discount or promotion, or make it easier for customers to reach out to your business for support.
Create more Options: Get creative and implement new ways to create revenue streams in case one of them slows down. You can diversify by creating new sales models, subletting extra space in your workplace, or adding a new niche of products to your inventory.
Plug Away at Marketing: Customers are the ones that will keep your business afloat. Keeping your foot on the marketing gas pedal will ensure that your business stays top of mind and is the first option considered when your customers need something.
Whether it’s billboards, print, social media marketing or Google Ads, invest in keeping your business visible and accessible at all times.
Get a business loan with Capital Quickly
Be prepared and invest in your business now with Capital Quickly’s financing options. Our business term loans can help you recession-proof your business with a lump-sum loan, while our lines of credit allow you to access flexible cash as needed.
Begin your process today and get funded within 24 to 48 hours!