When recession strikes, small businesses should be prepared for lower consumer spending, higher unemployment, and a general economic slowdown. It’s also likely that businesses will face a shortage of cash.
Although a recession can have a devastating effect on a small firm, companies that are prepared for the downturn can fare much better. In fact, being prepared can help a firm to emerge stronger from the recession. But if you treat the situation as “business as usual,” and don’t take preemptive action, your company could suffer.
So, what should you do? You can seriously consider taking out a business loan.
Why Is It a Good Idea to Take Out a Business Loan During a Recession?
Remember that CASH IS KING!
Giant corporations can ride out a downturn. They have access to various sources of funds. But for small firms, it’s another story. Cash can be hard to come by when you need it most.
It’s advisable to review your finances as soon as you can. Do you have adequate funds to ride out a downturn?
Bear in mind that the American economy isn’t in a recession yet. But things could change very quickly in light of the health crisis caused by the Coronavirus pandemic. In February 2020, the economy achieved its 128th month of growth. The current expansion is the longest on record since the 1850s.
A business loan could be the answer for difficult times, be it from a private lender or one offered by the SBA. The funds you borrow can make your business stronger and more resilient.
A business loan will allow you to prepare your business for a recession. By investing it wisely, you can position your company better than your competitors, You can also use the cash for those necessary expenses that you can’t avoid.
What Can You Do with the Funds from a Business Loan During a Recession?
Specifically, here’s what you can do with the cash:
Build an emergency fund
When the downturn takes place, many small businesses could see their sales falling. Lower revenues will lead to a decrease in your cash inflows. But you’ll still need to pay your fixed expenses. It’s advisable not to delay payments for things like rent, loan installments, insurance premiums, and utilities.
Focus on products or services that are in demand in a recession
Examine your existing lines of business carefully. Are you selling luxuries or necessities? When there’s a downturn, people are going to cut back on non-essential expenses. So, it’s better to concentrate your efforts on the products and services that are recession-proof.
But what if you’re sure that you’ll see a drop in demand when there’s a recession? You could even think about transforming your existing business into a recession-resistant business if the capital costs aren’t too high. Of course, you must have some expertise or knowledge about the new area that you are planning to get into.
Redouble your marketing efforts
It can be a big mistake to cut back on your marketing expenses when there’s a downturn. But many entrepreneurs fall into this trap. After all, sales and marketing expenses are among the easiest to reduce.
In fact, you should think about increasing your focus on acquiring new customers in a recession. It can be harder to meet sales targets when there’s a downturn.
Who Will Provide Small Businesses with Funds in a Recession?
On March 27, the CARES Act was signed into law. This Act has te purpose to aid the economy during the coronavirus crisis. This Act has 2 principal programs, the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loans (EIDL).
If your business needs quick access to funds, though, or if (for whatever reason) you cannot apply for these programs, a small business loan from Camino Financial could be the perfect solution. Our motto, “No business left behind,” ensures that every loan applicant’s requirement is given close attention. Additionally, we offer a host of other borrower-friendly features. These include:
- Fast funding: you can receive the funds in just 2 days. Time is of the essence when trying to fight back the impact of a recession.
- We don’t require collateral.
- You don’t need to have a credit history to apply.
- A social security number isn’t necessary for a loan. We only require an ITIN.
Use our business loan calculator to find out exactly how much your monthly payments and the total cost of your loan would be.
6 Ways to Use a Business Loan During a Recession
Here are some ways in which you can use a business loan to prepare for a recession:
1. Repay high-cost debt: Do you have an outstanding balance against your business credit card? Do you roll it over every month? If you are carrying credit card debt, it could be a good idea to pay it off with a small business loan. You could make substantial savings in interest costs if you do this.
2. Pay your suppliers early: Many vendors offer discounts for early payments. Check with your suppliers. The discount could be significantly more than the sum you will pay in interest costs.
3. Pay wages on time: A recession could leave your business strapped for cash. If this happens, you may not have enough money to meet your wage bill. However, it’s critical to pay your people on time. Delaying wages could lower employee morale. Make sure that your workers are paid on time, even if it means using borrowed funds.
4. Meet your financial commitments: Business owners should never delay payments to suppliers and lenders. Remember what legendary investor Warren Buffet has to say, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”
5. Use the money to boost your sales: What’s the #1 problem your business will face in a recession? According to a National Federation of Independent Business (NFIB) survey, it’s poor sales.
Take a look at the results of the NFIB survey conducted soon after the 2007- 09 recession:
Single Most Important Problem Associated with Weak Economic Conditions As Reported by Small Businesses
Source: Federal Reserve Bank of New York — Why Small Businesses Were Hit Harder by the Recent Recession.
In a downturn, your #1 priority could be to increase sales. Think about how you can deploy the funds you raise with a business loan to do this.
6. View the recession as an opportunity and not a threat: An article titled Value-for-Money Strategies for Recessionary Times in the Harvard Business Review describes the attributes of companies that will do well in a recession. It points out that to succeed in recessionary times, firms need to:
- Deliver products and services that allow customers to do more with the same resources.
- Help their customers to do the same with fewer resources.
- Help customers do a little less with far fewer resources
Essentially, you need to help your customers save money. If you can convince your customers that you can do this, you’re far more likely to succeed. Use the money from a loan to tweak your business model to make this change.
The Bottom Line
A business loan can help you to survive in a downturn. But more importantly, it can give you the funds to run your company in a manner that allows you to strengthen your firm’s operations.
Consider applying for a business loan to Camino Financial. It could give you the money you need to ride out the downturn and emerge stronger when it ends