This has lots of business owners concerned about how it´s going to affect them. But what they should really be concerned about is how it will affect their credit. A slow down in sales is one thing, but having less capital can force some business owners to close their doors for good.
You may have noticed in your credit card statement that you received following the September 11th disaster, a comment that late payments were being ignored due to irregularities in mail deliveries. Everyone´s been thoughtful, especially the lenders in this time of trouble for our Country.
The first to be economically impacted were the airlines. Then hotels, restaurants and many other businesses began to feel the economic affects. There´s been layoff´s and we´ll probably see more of them too. Congress stepped in, emergency aide is being planned, bailouts and more. And rightly so. In times like these it´s up to all Americans to pull together. But that doesn´t stop business owners from worrying about how this is going to affect them. It´s only the beginning.
Within a few short months credit card companies began to adjust their credit scoring, tightening their PICO scores and limiting the amount of credit they offer and who can qualify for it. What does consumer credit have to do with my business, you ask? If you´re a business owner and rely on your customers´ use of credit cards for your goods or services, that´s definitely going to affect you.
It wasn´t long after that and the banks began to reexamine their lending policies. They too will began to tighten commercial lines, lowering credit limits for many small business owners that have come to rely on their banking relationship to manage their cash flow effectively.
You can´t blame those purveyors of business credit for that. After all, they´ve got shareholders and depositors to answer to. This isn´t anything new, just look back on our history as a nation and you will see that every time there was a recession (they politely call it an economic downturn) both consumer and business credit was tightened.
So why should it be any different now? It won´t be, expect credit to tighten and there´s not much you can do to stop it. But there are a few things you can do that might help your business get through it.
Don´t think this will all blow over. Take stock of what you might do to ride out the storm. Here are some suggestions:
- Obtain a copy of your company´s credit report; You would be surprised at how much information is there, like what your credit limits are, what amount of your payments are on time and who is reporting that information. Often that information is outdated and if you contact those who report your companies credit about any mistakes you find you can get that information corrected before your bank looks at it. For business credit reports go to Dun & Bradstreet. It´s a good idea to do the same thing with your personal credit report. Personal credit reports are much more detailed in their disclosure and if you are the majority owner of your business, your bank will look more at you than at your company. All of the credit bureaus will provide you a copy if your write to them requesting for that information. Here´s a list: Trans Union, Equifax and Experian. These are three that are used most widely. The crazy thing is, what one reports another doesn´t report at all, or it´s incorrect. A perfectionist will go to all three, even though it´s a real pain in the B***. It´s as bad as the search engines differences in ranking your website! They each have their own way of doing it.
- Review your credit with your bank; Many business owners figure, let sleeping dogs lie. Don´t be afraid to discuss your current credit outlook, what you found on your report, any corrections that you have asked to be made (show them the letter you sent to the credit bureau requesting the correction) and most importantly, ask your banker what you can do to improve your credit. Banks aren´t all mean and nasty, some actually like hearing from their customers now and again, and they´re delighted to discuss your needs. You might find that it won´t take much to improve your credit!
- Contact non-bank resources; There are lots of companies that provide credit besides banks, such as Small Business Investment Companies. This is a personal favorite of mine, locally owned and they can be quite accommodating too. Contact the National Association of Small Business Investment Companies (SBIC) to find one near you. The Federal Government´s Small Business Administration organization has loan and guarantee programs that you can use at your own bank SBA. Ask your banker about it.
- Review your operating policies with your employees; Employees are one of your best resources and the one too often over looked by business owners. Talk to your employees about the company and it´s plans. Let them know you believe in them and ask them for suggestions on what they could do to lower costs or improve efficiencies. Let them know you´re all in this together and that you´re counting on them to work with you, not for you. You´d be surprised at how much help you can get if you only ask. After all, you´re not the only one whose concerned, your employees worry too.
- Talk with your accountant; They do more than keep books and prepare taxes. They may have some helpful suggestions on ways you can improve controls and efficiencies.
- Contact your customers; Let them know they´re important to you and that your willing to work with them in these trying times. They owe you money and they may be worried too. They´ll be glad to hear from you and know you understand if they´ll only work with you and not avoid you, everyone will come out ahead. Customers like to know that you value their business relationship. If they get behind, they might otherwise seek other sources of your goods or services, hoping to extend their own operations. So if you communicate with them, their loyalty usually pays off in the long run.
About the author: Eric Stevenson can be reached via emailor at http://www.axiomcapital.net. Eric Stevenson is considered one of the leading management analysts in the United States. He is the founder of Axiom Capital Corporation, a Phoenix Arizona based financial corporate development firm that specializes in merger and acquisition transactions and finance. As an accomplished management analyst, he has been quoted in the Wall Street Journal, Dow Jones, CFO Magazine, VAR Business, E-Company, Computerworld and U.S. Technology on public company mergers. Contact Stevenson at email@example.com or call 602-549-1769.