Is your business poised for growth? More importantly, do you have the capital you need to fund and sustain that growth? In our uncertain economy, with budget cuts being threatened and implemented, it could become even more difficult for business owners to get access to capital.
Last month President Trump revealed his budget, which called for deep cuts to funding sources that help small businesses. One of the deepest cuts proposed is a reduction in the Community Development Financial Institutions Fund (CDFI) from $248 million to just $14 million. The CDFI Fund supports lenders (CDFIs) that provide capital to entrepreneurs who often can’t obtain a bank loan. Other small business funding programs have also had their funding reduced, and a few have been defunded completely, including the Delta Regional Authority, the Appalachian Regional Commission, and the PRIME grant program.
In an uncertain lending environment, it will be crucial for small business owners to understand what they can leverage and do to increase their access to capital. If alternative sources such as CDFIs are being threatened or can’t provide as usual, entrepreneurs may need to apply for traditional funding, which won’t be easy for most.
Here’s how you can prepare your business for uncertainty and federal budget cuts, so you can fund your business growth.
Build Your Assets
Your biggest asset when it comes to getting a loan, especially with a traditional lender, is your ability to repay the loan. Lenders look at a variety of factors when evaluating your ability to repay, and many will purchase your business credit file. For most traditional lenders, a strong business credit file can be a solid indicator that a company is financially stable enough to pay back a loan.
The key to navigating an uncertain lending environment is to establish your business credit before you need it, so it’s ready and strong when you apply for a loan or need quick funds.
I talk to a lot of small business owners when I speak at events, and one woman’s story about how she made it through the 2008 financial crisis is the perfect anecdote: as banks scrambled to reduce their risk during the recession, her line of credit was revoked and she had to quickly find a way to pay her employees, who were largely members of her own family.
Fortunately, she was prepared, and had already established her business credit file. She leveraged her file to get alternative funding that helped her keep her company running. Around 2011 when we spoke, her company was actually experiencing growth. This is the power of a strong business credit file.
Manage Your Cash Flow
If you’re unable to get outside funding or if you’re caught up in a lengthy loan process, you can keep your business running by managing your cash flow. Setting the right credit limits, getting vendors to pay on time, and forecasting your flow can all help you pay on time and avoid cash flow crunches.
Again, business credit can play a key role here. By checking the business credit files of customers and potential clients, you can help identify whether the company may pay late or not at all. Scores and ratings give you insights into whether a company will become delinquent or cease operations in the next 12 months. You can use this information to anticipate slow payments or avoid working with companies that have a history of slow pay. Closely monitor the businesses you work with to stay on top of changes to scores and ratings, so you’re not caught off-guard by a late payment that affects your cash flow.
In the face of uncertainty and tightened budgets, your business can benefit from being flexible. You may need funding from multiple sources to secure the capital you need for growth, and strong business credit can help you no matter what options you seek. Managing your cash flow and reducing your risk can help you in the short term as you build your business credit and apply for funding.
Want to learn more about managing your cash flow and protecting your business from slow payments? Consider joining Dun & Bradstreet’s Global Trade Data Program. It’s free to join and is a powerful way to let the companies you work with know that you expect to be paid on time.