There’s an old adage that the best time to borrow is when you don’t need the money. And it has never been more true.
Even for businesses that have historically had easy access to credit, many are surprised to face closed doors in their hour of need.
Banking has changed. Risk tolerances have become lower while lending rates have jumped up.
And if your business is one of the more than 900,000 that received a Canadian Emergency Business Account loan during the pandemic, the December 31, 2023 repayment deadline is suddenly looming large. Fail to repay your CEBA loan in full, and your business will begin paying interest AND will be required to repay the otherwise forgivable portion. So far, only a small percentage of businesses have repaid their loan.
So, bigger trouble is on the horizon. And even a long-term healthy relationship with your commercial business bank manager may fail to overcome tightening bank policies that reduce the size of credit line or bank loan your business can access.
So, when you can no longer count on your bank for financing, what can you do to weather a downturn in business or access essential capital?
- Assess your business from the inside and define how often you’re relying on your credit line or loan to meet payroll and tax commitments or pay your commercial lease. If your business is continuously coming up short, it is time to make hard decisions to reduce staffing levels and cut costs. Layoffs are painful, but a bank loan to help make ends meet on an ongoing basis only digs you a deeper hole. Take advantage of this reality check to trim the fat, cut redundancies and improve overall efficiencies at every level of operations. When things turn around, you will be more profitable than ever.
- Review your cashflow and be assertive about keeping that pipeline flowing. Don’t offer credit to new customers without a credit check and be quick to freeze accounts of slow paying customers. (When you need the money, it can be hard to turn away sales, but this is when you can least afford to take on bad debt.) Do a gut check every time and don’t extend credit you can’t afford to lose. Change your systems and policies to result in getting paid up-front whenever possible and adhere to clear and strict payment expectations. Good customers will respect these, and bad ones can go stiff your competition.
- Don’t be ashamed to ask for help. Talk to your accountant to get a clear picture of your reliance on bank financing and seek strategies you can implement to minimize this weakness. Meet with your commercial banker and ask about policy lending. Bank lending often has renewal dates and it’s good practice to contact your banker months before this review date so you have time to plan (and seek alternatives) if their lending criteria change. Bankers have a tendency to try harder when they see you are informed and have other options.
- Build a relationship with a reputable collection agency. One of the most important things you can do for your business is ensure you’re running it efficiently enough to have a strong balance sheet in every business climate. If you have any overdue accounts receivables you can’t budge — or you’re getting the runaround — talk to experts like MetCredit who can convert those high-risk line items into money in the bank. (How late is late enough? Find out why 60 is the New 90 when it comes to overdue accounts.) It’s too commonly thought that you should only engage a collection agency as a last resort. In reality, we can best help you when collectability is highest. Waiting until a customer is in deeper trouble (or in receivership) is a recipe for bad debt.
In all cases, the solution boils down to taking a more proactive stance on your business, from here on in.
Business leaders who increase efficiencies and reduce costs while seeking expert help will do more than build necessary resilience to weather the coming financial storm. They will become more knowledgable, better backed and fully equipped to overcome future challenges — and to take on the next generation of smart, hungry competitors whose businesses are purpose-built to thrive in the new landscape.
Don’t wait it out. Get to work making those changes. And when you look at your aging receivables, don’t hope for a fictitious best-case scenario. If you haven’t tried our quick and easy online debt collection system, you’ve been missing out.
Never hesitate to reach out with any questions. We’re happy to answer without any sales pressure or obligation. Get to know us, for when you need us!
First published on Forbes by Brian Summerfelt June 13, 2023