Should your small business get a loan to cover the rising costs of inflation? It can help you decide.

Small business owners have spent years trying to battle the effects of the COVID-19 pandemic, and now inflation has thrown a damper on the progress of the recovery. Four in five businesses say rising prices have had a significant impact on their operations, according to the U.S. Chamber of Commerce’s 2022 Second Quarter Small Business Index.

And while businesses have tackled inflation concerns in a variety of ways, the Q2 2022 Index reports that 46% of business owners surveyed took out a loan to cover rising costs, up from 39% in the first quarter.

If you’re considering a business loan to deal with inflation, use these three tips to help you through the process.

1. Understand your finances

Getting a small business loan might seem like a logical way to combat inflationary issues, such as rising expenses and cash flow gaps.

However, before you start looking for financing, you need to ask yourself: can my business afford to take on debt? How can a potential loan benefit my operations now and six months from now?

If you’re considering a business loan, you need to know exactly how much cash is flowing in and out of your business each month, your basic operating costs, seasonal revenue trends, and any other factors that affect your cash flow, Zoe Newman, U.S. managing director of Capital on Tap, a business credit card provider, said in an email.

Understanding your finances can help you predict the potential impact of loan funds and repayments on your business, Newman said.

This assessment can also help you determine if debt refinancing is a viable option. “Given rising interest rates, now is a great time for small business owners to refinance any variable rate debt they have into a fixed interest rate,” said Mike Rozman, CEO and co-founder of BoeFly, via email. BoeFly is a fintech specializing in financing franchises.

If you can refinance a variable rate loan into a fixed rate loan, you will protect your business against any future changes in interest rates.

See: Four Ways Small Businesses Can Prepare for a Recession

2. Find the right lender

As the Federal Reserve raised interest rates in 2022, banks tightened their business lending requirements. To access financing, small business owners may have to compare lenders to find the right option.

Begin your search with a financial institution with which you have a relationship. “The longer you’ve done business with the financial institution, the more likely they’ll know your business and be willing to work with you to find the best solution,” Sam Brownell, founder of small business Stratus Wealth Advisors financial planning. company, said in an email.

Brownell also recommends looking beyond large financial institutions and considering regional or local banks, credit unions, or other lenders that cater specifically to business customers.

The interest charges may not differ much, but a lender who gets to know your small business and can help you solve problems – instead of just selling you products – is a worthy long-term partner, a he declared.

Similarly, you can explore community development financial institutions, or CDFIs. These organizations typically focus on lending to traditionally underserved businesses and those in low-income communities. CDFIs often offer business development services – and their loans may be easier to obtain.

Related: Inflation is hitting small businesses hardest in these cities and states

3. Review your operations and plan for the future

Small business owners can use additional financial strategies to fight inflation, whether or not they decide to get a loan.

You can re-examine how your business operates and determine if there are opportunities to increase efficiency and reduce costs. You can think about where your business is most successful — and whether there are ways to build on your success, or even create something new.

With every tough economic time comes an opportunity for innovation, Newman said.

“While most companies tackle the problem by simply trying to stay afloat on a shoestring budget, those able to pivot quickly to identify and meet new customer needs that arise from a changing climate have a real opportunity to grow,” she said. .

Additionally, business owners can benefit from working with a CPA or other financial expert to update their records and discuss financial plans for the future.

See: Small business owners are worried about a recession, but many are confident they will survive it. here’s why

If you’re applying for a business loan, these experts can help you get organized and prepare a solid application. And even if you’re not looking for financing, they can advise you on the best financial strategies to save on expenses and increase your bottom line, which puts your business in a better position to face any other economic challenges that may arise. .

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Randa Kriss writes for NerdWallet. Email: [email protected]

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