Small Business Trends:
Unless you’ve been in a cave for the past month, you know we are in the midst of a credit crisis.
And if you’ve been watching TV, listening to the radio, reading the newspaper, or looking at the Web, you realize that the credit crisis has hit small business owners particularly hard.
So what can small business owners do to cope with the crisis? I’d like to offer a few suggestions.
1. Extend less credit to your customers. You can better cope with the credit crisis if you cut back on the amount of capital that you need. Many businesses lend money to their customers, in the form of trade credit, increasing their own need for capital. Providing less trade credit to your customers will allow you to conserve your capital for your own operations.
You can also reduce the amount of credit you provide to your customers by reducing your accounts receivable. You can do this by cutting the length of time your customers have to pay you or by offering them greater discounts for paying quickly. You can even turn over your receivables to a factor to get your cash immediately and let the factor collect the receivables.
2. Borrow from different sources. Some lenders still have capital. Community banks, in particular, did not get involved in the toxic mortgage mess. So going to community banks might get you a lender willing to lend to small businesses today. Also peer-to-peer lending is growing at a rapid pace. Borrowers with good credit still seem able to borrow at reasonable rates from private individuals. So you might consider peer-to-peer borrowing rather than going to banks and other institutions. Finally, if your trade creditors are still offering you credit, you can get money from them.
Read Scott Shane’s full article.
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