How to Finance Your Business in an Economic Downturn

Are you wondering how to finance your business through the pandemic and beyond?

Business owners today face a wave of unprecedented challenges–challenges that aren’t likely to disappear anytime soon.

Whether you’re building a new business or struggling to maintain a current one, understanding what financing options are a reality for your particular size and type of business is essential.

Crisis Management Support

With a health crisis now affecting the lives of millions, we’re all hyper-aware of how delicate our health and wellbeing are.

Your business is no different: Just like our personal health, it’s best to build resilience and minimize risk wherever possible.

Here are some basic tips for reducing financial strain and mitigating risk:

Do remain cautious about your budget and spending
Check around for local, state and federal loan forgiveness options
Stay connected with your local business community
Re-evaluate your initial business plan and forecast for worst-case scenarios
Don’t make plans based on the idea that things will eventually be back to “normal”
If you are considering laying off employees, make sure you are within legal bounds
Stay on top of your legal responsibilities and rights as an employer
Keep a running list of financing ideas and resources

Finally, there’s no shame in asking for help from trusted financial and legal experts to ensure that your business is protected.

Lending Programs for Small Businesses (SBICs and SBIRs)

SBICs are great to have in mind if you are wondering how to finance your business, especially a new small business startup.

An SBIC (Small Business Investment Company Program) is a company that is privately owned but run in partnership with the Small Business Association (SBA), where the SBA will match the investing company’s investment amount 2:1.

The SBIC may offer a loan with interest (debt) or may buy shares in a business (equity).

This type of financing is a little more forgiving than traditional lending; repayment terms are normally 10 years, with interest rates from 10-14%.

The SBA offers funding to certain SBICs in certain sectors–find out if you are eligible for an SBIC here.

The Small Business Innovation Research (SBIR) Program is for small businesses that specifically need funding for research and development (R&D) to commercialize their products and services.

Learn more about SBIR eligibility and applications here.

Business Financing Options: Federal Support

The government offers loan programs and other funding options for people who don’t qualify for a bank loan

You still need to apply for these loans via a lender, but for special loans, the federal government will pay them back in the case of a default, which in turn reduces the risk to the lender.

The CARES Financial Relief Act offers a Paycheck Protection Program (PPP) for small businesses and self-employed individuals.

As of the time of writing, the PPP is accepting applications until August 8, 2020. PPP loans may be forgiven but you are more likely to obtain loan forgiveness if you retain staff.

There is also the option of low-interest loans for disaster assistance.

Search for state-related business resources here.

Financial Relief for Colorado Businesses

If you’re wondering how to finance your business, you aren’t limited to federal resources.

There are plenty of other financing options available to small businesses at the municipal, regional, and state levels.

Interest relief programs, resilience loans specifically during the pandemic, are widely available as are loan forgiveness programs, and tax deferral programs.

Colorado small businesses will find financing options here.

You will also want to check out the following (many other states will have similar resources):

Colorado Small Business Development Center’s resource page
Kiva loans Denver
Small Business Emergency Relief (Denver)
SBA Express Bridge Loans
1st Southwest Community Funds
Denver Microloan Program
Colorado COVID relief fund
Arvada Emergency Business Recovery Initiative
Centennial Small Business Loan Fund
Also, be sure to stay in touch with organizations that are dedicated to your specific sector or industry.

Learn more about financing options here.

Consider Investing in Alternative Markets

If you’re looking for ideas on how to finance your business, why not consider looking around in your current market or even alternative ones?

Investing in a second business might be a way to find stability if you’re struggling with the first.

It might make sense to re-invest in a different sector or even take market share if you see your current competition folding, but you know you have ideas for solutions that they didn’t get to implement.

Consider a new acquisition or partnership to gain access to new markets, or even developing a secondary product or service which is easy to sell online.

Always understand your risk factors and be prudent, but don’t let a recession scare you into stopping altogether.

With some research and careful risk mitigation, this could be a great time to start something new.

Accounts Receivable

Sometimes during a sudden economic crisis that affects supply chains, businesses will specifically struggle with their accounts receivable (A/R).

Accounting best practices are crucial at this time, and specific A/R strategies might be warranted.

Here are some suggestions for managing your A/R in a crisis:

Practice asking for cash early
Implement cash on delivery system
Conduct an A/R audit
Review your terms of conditions of sale
Review your purchase order processes
Consider implementing security agreements

Build a Strong Support Team

There’s no way of telling when or how this current economic downturn will end. So instead of putting yourself at risk, why not rebuild it with a new plan in mind?

You can’t protect yourself 100% but with the right people on your side you can protect your business and possibly even help you thrive through a recession

If you’re struggling to make decisions or manage finances, or you’d like guidance starting a new business, a Colorado business law expert can help.

For more information, schedule an appointment or call 303-780-7333 for a free 30-minute consultation.

Enjoyed this article? Here are three more to help you:

What is Business Law?
How to Manage a Crisis Before it Happens
Going Bankrupt? Here’s What You Should Do, and How to Avoid the Pitfalls.

How to Finance Your Business During Difficult times