How Small Businesses Can Get the Money they Need in the Coming Recession

10:29 09 October 2019

It’s been a while since we’ve had one, but the signs are pointing to a recession and this is never a good sign for businesses. Besides the impact on the spending habits of customers, a recession also means that banks will become reluctant to give loans to small businesses. This is a shame as small businesses form the backbone of local economies and a lack of capital can have a ripple effect in communities across the country.

What does this mean for small business owners? Well if running a small business wasn’t hard enough, the odds are that a decelerating economy is going to make life even harder. As such, small business owners not only need to be more aware of the cash position of their business but also need to have several options available to bridge the gap.

With that in mind, here are some tips on how small businesses can get the money they need in the coming recession.

• Invoice Factoring

In many ways, the best source of credit for small businesses – in good times or bad – are its customers. The reason for this is that your larger customers might be considered creditworthy. If this is the case, then looking at invoice factoring might be a way to get the money your business needs.

While this source of financing often is easier to get than a bank loan, there are a few things you want to know about factoring. For starters, it is only a good option when you have customers who are considered creditworthy. As such, this option is best for businesses that sell to other businesses. If most of your sales are to consumers, then you might want to consider another form of financing to get the job done.

Invoice factoring might be a good option if you are looking to get paid faster without needing to give a massive discount. Just remember that factoring works best when you are trying to bridge a gap in your working capital and not to finance purchasing a new machine or investing in tools to help your business grow.

• Non-Bank Loans

If you run a small business, then you know first-hand that banks are no longer the best place to go when you need a loan. The reason for this is that many commercial banks are no longer geared up to service the needs of small businesses. Sure, they can help you with a checking account or a credit card but when it comes to lending, they make more money for the same cost by giving out multi-million-dollar loans to big businesses.

However, this doesn't mean that you don't have any options to get the money you need. Several non-bank lenders have burst on the scene over the past decade. This includes peer-to-peer lending sites are well as lenders such as https://www.quickloansdirect.com/business-loans/ who specialize in “qualifying business on the health of their business – not based on arbitrary credit scores.”

This approach can be extremely beneficial for a small business that is just starting as the owners might not want to stake their personal credit history on the loan. Doing so will help to keep an owner's credit clean while getting the money they need to grow their business.

Just keep in mind that many of these loans are short-term, meaning they will need to be repaid in a year or less. As such, they are best suited for short-term needs like cash flow and not long-term needs such as equipment purchases.

• SBA Loans

While getting an SBA loan doesn’t happen overnight, it is a good option for a business that is seeking to expand. These loans range up to $5.5. million in value and can be used to purchase new equipment, pay for marketing, or even finance exports.

Keep in mind that the SBA is not a lender. Instead, it is a government agency which insures loans given to small businesses. This program makes it easier for lenders to make loans to up and coming businesses – many of whom would not qualify based on traditional underwriting requirements.

However, getting an SBA loan will take time as you will not only need to have a business plan in place, but you might even need to pay a consultant to help you put the loan package together. As such, these loans might not be the right fit for small businesses that need money fast.

While it’s inevitable that another recession will come, this doesn’t mean that you can’t get the money you need to help your small business. Have a plan and then use these three options to get the funds you need to help survive a potential economic slowdown.