5 Ways to Recession-Proof Your Business Right Now

If you’re worried about the potential impact of a recession on your small business, you’re not alone. Business owners are preparing for an economic downturn, not knowing when it might happen or how bad it might be. Eight in Ten Small Business Owners Think Economy Will Go into Recession This Year, CNBC Survey Shows | SurveyMonkey Small Business Index Q2 2022.

CEOs of large companies surveyed by the Conference Board were slightly less pessimistic. Nearly 60% said they expect the United States to experience a very short and mild economic recession, while 11% predict a severe recession.

It’s impossible to predict when a downturn will occur or how long it will last, but one thing is certain: small business owners should take action now to prepare for potentially tough economic times ahead.

There are many ways entrepreneurs can prepare for the next recession, from cutting costs to diversifying product lines. Access to finance can help small businesses when cash flow is uncertain and can provide the financing needed if the business needs to pivot to provide the products or services that are in demand.

Here, we’ll focus on why and how to take advantage of funding opportunities to help your business navigate the year ahead.

1. Line up a line of credit

A line of credit is one of the most popular forms of financing used by small businesses, according to the Federal Reserve’s Small Business Credit Survey. There’s a good reason for that. You borrow as much as you need (up to your credit limit) and only pay interest on the outstanding balance. Once you get a line of credit, you don’t have to fill out an application every time you need to borrow more money.

The best time to get a line of credit is before you need it. If your business is facing a cash crunch, it may be more difficult to qualify. Banks have the highest standards for lines of credit but offer the lowest interest rates, while online lenders are often more flexible on qualification requirements and can make credit decisions very quickly. .

If you do nothing else, make sure your business has access to a line of credit.

2. Financing growth

Although you may be tempted to cut costs, don’t ignore opportunities to grow your business. A Harvard Business Review research project, Roaring Out of Recession, found that companies that have survived recent recessions the best are striking the right balance between cutting costs while continuing to invest in growth.

“These companies are selectively cutting costs by focusing more on operational efficiency than their competitors, even as they invest relatively comprehensively in the future by spending on marketing, R&D and new assets.” Dubbed “progressive companies” by the authors, they “deploy the optimal combination of defense and attack”.

Now may be the time to leverage financing to invest in inventory, equipment, or even real estate to help your business serve more customers, even in tough times.

For larger projects, a term loan that can be repaid over months or years may be the best choice. Others may qualify for short-term financing options, including business cash advances.

3. Lock in at lower rates

The Federal Reserve has already raised the federal funds rate twice in 2022, and several more rate hikes are expected. Since business loan interest rates often follow this benchmark interest rate, it is likely that rates for many types of small business rates will increase.

Getting a loan now before interest rates rise can be crucial. Even if you get a loan with a variable rate that may increase in the future, you now qualify based on current rates. This may be more difficult to do as rates climb.

4. Save your cash

One of the realities of an economic downturn is that your customers may also pay more slowly. Slow payments are already a problem for many small businesses; 64% of small businesses are affected by slow payments – and that’s normal, according to research from Fundbox. In a recession, it will likely get worse.

If you have a B2B business (where you sell to other businesses) and offer payment terms to your customers, consider invoice factoring to speed up payments. Instead of waiting 30, 60, or 90 days for customers to pay, you’ll get funds within days. This type of short-term financing is often more flexible when it comes to credit. Make sure you understand the cost of invoice financing or factoring and how it affects your bottom line.

5. Refinance

If your business is in debt, you may be able to refinance or consolidate your debt with less expensive financing. A lower rate means more of your payment goes towards paying off the balance rather than interest or fees. And lower payments can free up cash flow to invest in other areas of your business or just to give your business a break. The ideal scenario is to refinance the debt with lower rates and payments, but sometimes you will have to choose between one or the other.

Again, rates will continue to rise this year. Allow a year: your future self may be happy that you secured financing at today’s rates.

Bonus Tip: Get a Business Credit Card

A business credit card helps you track your expenses and can save your business money through cash back or other benefits. They can also offer you a flexible, low-cost line of credit, especially when you take advantage of low rates, such as 0% introductory rates.

It’s currently a buyer’s market for credit cards, with many card issuers competing for your business. However, when the economy slows, card issuers often respond by tightening their eligibility criteria, and it can be harder to get the card your business needs or wants.

Nav can help you compare options to find the right credit card for your business.

This article was originally written on May 31, 2022.

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