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7 Financing Strategies To Help Small Businesses Navigate the Economic Landscape

Posted by Kelly Grefe on Tuesday, July 25, 2023

Don’t let increasing capital costs, interest rates or inflation hold your business back during challenging times. Position your company for success with these financing options and management strategies.

A Male Small Business Owner Looking At A Financial Statement At His Cafe

In today’s dynamic world, small business owners are constantly evolving and changing. Each day they face new opportunities that put their financial and entrepreneurial skills to the test. But, they also deal with ever-present obstacles, such as when the global market shifts and financial markets experience changes that impact borrowing costs and their business operations.

One of those concerns is accessing affordable capital to secure funds for expansion or simply to maintain day-to-day operations when the economy is influx. The rising cost of capital can be a result of such factors as increased demand for credit or a tightening of lending practices by financial institutions. Interest rates, another critical component of the economic ecosystem, can have a profound impact on small business financing decisions. Inflation poses yet another challenge for small businesses. As the general prices of goods and services rise, owners can face increased expenses for raw materials, labor and other operational costs.

Navigating this landscape requires a careful balance between seeking external funding, optimizing internal cash flow and managing debt. With careful financial planning and strategic decision-making, you can position your company to successfully handle times of rising costs. We will explore actionable strategies to help you conquer the challenges of escalating capital costs.

1. Review and Adjust Costs

As the economy ebbs and flows, small business owners need to anticipate potential shifts in borrowing costs, loan payments and the overall cost of capital. It’s essential to review your cost strategy and consider adjusting your prices accordingly. Evaluate your profit margins and determine whether they need to be adjusted to adapt to rising costs.

Analyze your business expenses and identify areas where you can cut costs without compromising the quality of your products or services. For instance, you can look for opportunities to negotiate better deals with suppliers, optimize your inventory management or reduce nonessential expenses.

You can also streamline your business operations to improve efficiency and reduce waste. Identify bottlenecks, optimize processes and consider adopting technology that can automate tasks and reduce labor costs. Outsourcing can also help free up your time so you can focus on other small business tasks.

2. Diversify Revenue Streams

Relying on a single product or service can expose your business to greater risk during inflationary periods. Diversify your revenue streams by expanding your product, targeting new customer segments or exploring strategic partnerships. This can help offset the impact of inflation and provide stability to your business.

3. Evaluate Financing Options

High interest rates can make borrowing more expensive for small businesses, especially if you’re a manufacturer or in commercial real estate. But, borrowing from traditional sources, such as a community bank, for short-term and long-term loan options can help. They have a variety of loan options ranging from an equipment loan to help you buy or lease equipment to a working capital loan, which is money borrowed from your bank or lender to keep cash flowing in your startup or expanding business.

Look into fixed-rate loans that can protect you from future rate hikes, or consider consolidating high-interest debts into a single, lower-rate loan. However, be cautious about taking on additional debt; assess the potential risks associated with borrowing.

There are government programs and incentives that are designed to support small businesses, which may include subsidized loans, grants or tax benefits. Stay informed about local, state and national programs that can help offset the rising costs of capital and provide financial relief. The U.S. Small Business Administration (SBA) provides resources and loans to help businesses grow and succeed. There are many benefits of an SBA loan, and the specific terms can be negotiated between you and an SBA-approved lender like Northwest Bank.

A strong personal and business credit profile can help you get a loan at a better interest rate. Maintain a good credit history by paying bills on time, reducing outstanding debt and keeping credit low to help boost your credit score. Regularly review your credit reports and address any inaccuracies promptly. Building relationships with commercial lenders and demonstrating your business's financial stability can also improve your chances of securing favorable financing terms.

Additionally, consider renegotiating loan terms with your existing lenders to secure better rates or explore refinancing options. Compare interest rates and terms offered by different lenders. Thoroughly assess the cost of each option before deciding. A commercial lender like Northwest Bank can work with you to apply.

4. Improve Your Cash Flow

In times of inflation and high interest rates, effective cash flow management is crucial. It’s an important indicator of the financial health of your business. In addition to staying on top of bookkeeping, issue invoices in a timely manner and negotiate extended payment terms with your suppliers. Using a business credit card and online payment options as well as electronic fund transfers can help streamline your business operations.

5. Monitor and Forecast Trends

Stay informed about economic trends, inflation rates and interest rate movements. Regularly review your financial statements and adjust your business plan and pricing strategies accordingly. By monitoring and forecasting, you can proactively respond to changes in the market.

6. Focus on Customer and Employee Retention

During challenging economic periods, customer loyalty and employee retention are important. Strengthen your relationships with existing customers by providing exceptional customer service, personalized offers and loyalty programs. You may decide to diversify your business to add more value for your customers. This can help maintain sales levels and lessen the impact of inflation.

Attracting and retaining successful talent is a goal of every small business owner. Adding employee training programs can help you expand the knowledge base and management skills of current employees.

7. Seek Professional Advice

Consult with your financial advisors, business consultants and commercial banker. They can provide expert guidance tailored to your specific business and industry. Not only that, but they also offer advice about the different strategies you can use to help navigate inflation and interest rates to protect your business. Advisors can discuss what small business banking services are available and direct you to financial resources from the Small Business Development Center.

Contact our team of commercial bankers today to learn more about how Northwest Bank can help position your business for long-term success.

The Author

Kelly Grefe

Kelly Grefe

Business Banking Manager, VP

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