Ohio SBDC - Free Expert Business Advice

Can we all agree that there are a few challenges with the economy these days? What does this all mean if you are in a small business now? What if you are thinking of starting a small business? How many licks does it take to get to the center of a Tootsie Pop? A lot of questions not to many clear cut answers. Here is what we are seeing at the Small Business Development Center (SBDC).

Credit is tight. You've been hearing that on the news but what does it mean? Banks are still making loans. They have to that is their business so you can still get a loan but is that the smart play right now? The challenge is that as conservative as banks were in the past they are even tighter now. This has been coming for a while. We've been watching credit score requirements inch up for six months or so. We used to tell people that you needed at least a 700 credit score to be considered for a conventional business loan and now we are saying you need a 730 to a 740. Banks look at this first. You have to get over this hurdle before your business plan is seriously reviewed. Another challenge is that you may have received a loan last year but you may have problems this year if your credit score is below the new guideline. You may still get the loan but expect extra due diligence on the part of the bank and possibly a high interest rate.

If you do pass the credit test you better have a strong business model. The bank will review your financial projections and they have raised the bar with their analysis. A bank will conduct ratio analysis on your financial statements. These ratios have also tightened. Be sure to ask your banker what their current ratio requirements are before going in for a loan.

Keep in mind that when you do your projections you need to take into account THIS economy. Companies and consumers are cutting back on spending. Will this impact how much you can sell? If so look at the total picture...possible reduced revenue, possible increased expenses due to higher prices, lower net income all compared to tighter bank requirements relating to your performance.

In my time with the SBDC I've seen ups and downs in the economy but this is different. With the government involved there may be regulatory changes that could impact the way business is done in the future. I can't say whether additional regulations are needed, maybe actual enforcement would be sufficient. One thing I can say is that the political system will react, possibly over react, to this crisis and until you have a better sence of what will happen you need to hang on. The future is uncertain. Give it six months or so until you can better judge the impact of the bailout plan and the presidential election. There are a lot of moving part right now and it is difficult to really predict how things will look in the future. I have spoken to several of the staff of the SBDC and the advice they are giving is to "be realistic" and "prepared". Your goal at this point should be survival. Status quo is good right now. You should be executing around what is needed to keep your business open. Plan, review results and execution are what you need to concern yourself with. Make sure you are focused on sales and expense control. If you absolutely insist on seeking financing right now make sure that every dollar you get from the bank will impact your performance. If you have to duct tape your chair together do it, don't use your capital for infrastructure that doesn't make you money and add to the value of the company.

No question we will come out of this. Entrepreneurs and small businesses are the catalyst of this economy. Just be smart and keep your eye on the ball and you'll be fine.

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