Don’t Just Accept Credit Changes as Final
Goal: See if there’s some way to salvage the
situation.
Whenever you’re faced with an unfavorable change in
your credit situation — the bank that hosts your day-to-day operating
expenses decides to lower your credit limit, for example, or your credit card
company hikes interest rates — it pays to talk to the lender
directly. If your company is in good standing and you can prove you have the
wherewithal to keep current on your payments, you might be able to negotiate
for a better rate or a longer payment schedule. “Reach out to the
lender and have a conversation about keeping the best terms,” says
small business consultant Vivek Lakhiani. “Otherwise they’ll
use whatever default terms they’ve assigned to everyone.”
In the case of Advanta, customers won’t be able to
make any additional charges on their cards, but they can still take time to pay
off their balance according to the terms in their business card agreement. And
some Advanta customers — those that regularly paid off their balances
each month — are being invited by American Express to open a new OPEN
credit card with them.
Plan B
Find Some “Give” in Your Cash Flow
Know where every penny goes both in and out of your company,
advises Jeff Van Winkle, vice chair for communications at the
href="http://www.nsba.biz/">National
Small Business Association, since it’s the best way to
find and cut extraneous business costs. If you see areas where additional cash
is needed, try renegotiating contracts with your suppliers. Ask to extend your
payment periods by 5, 10, or even 15 days. “Just be aware that you
might have to lay out a bit more in terms of payments or interest rates,”
says Lakhiani. On the flip side, ask clients to pay upfront, or see if they’re
amenable to paying you more quickly.
Get a Backup Credit Card
Goal: Replace the credit you’ve recently
lost.
While many small business owners use personal cards to finance
their business, almost every major bank offers a credit card targeted to small
businesses, including American Express, CapitalOne, and MasterCard. As
mentioned, Advanta’s best customers are now being courted by American
Express OPEN, one of the Amex’s first offerings that allows clients
to pay their balance over time.
Credit cards have always been the easiest way for small
companies to access a new line of credit, even as they lose credit elsewhere.
While the credit crunch has forced some card issuers to eliminate a few of
their card offerings and tighten restrictions — for instance, you
probably won’t get rates as low or a credit limit as high as last
year — it shouldn’t take any longer than before to be
approved for a card. All you need is a relatively high credit score.
In choosing among small business cards, decide what’s
more important to your company: A card that offers rewards such as cash back or
travel points, or one with lower rates — few have both. “It’s
all about research,” says Gene Fairbrother, the lead small business
consultant for the National Association for the Self-Employed.
Unfortunately, small business-specific cards are no longer
marketed as heavily. Emily Peters, a personal finance expert at
href="http://www.credit.com">Credit.com,
a consumer credit Web site, points out that card issuers have cut down on their
promotional budgets, so you’ll often have to go directly to issuers’
Web sites and dig around before calling to apply.
Danger! Danger! Danger!
Replace a Closed Account Quickly to Protect Your Credit
Score
If Advanta or another issuer closes your main credit account,
even through no fault of your own, your personal credit score could drop by as
much as 100 points. Reason: if the account was shut down before you paid off
your balance, your utilization ratio, or the ratio of your current balance to
your total credit limits, will be hurt. This is especially bad if you’re
using a second card that holds a big balance, since all of a sudden it’ll
look like you’re maxed out. However, as you open a new card and
resume regular payments, your credit score should climb back to its true level.
Contact Your Local Bank
Goal: Get credit from the folks that can provide it
quickly.
In the event of a credit meltdown, many small businesses tend to
overlook their best bet for getting quick credit: the local bank that already
hosts their checking and savings accounts. You might not be able to secure as
large a line of credit as you could have last summer, but financial advisers
estimate that customers in good standing can land anywhere from $5,000 to
$10,000. “You already have a relationship set up; they know you,”
says Fairbrother. “They’re going to do everything to
keep you there.”
That includes increasing your credit line or working quickly to
help you weather the rough patches. Within a couple days after Advanta
cancelled the Coopers’ credit card, for example, their local KeyBank
issued them debit cards to a checking account they had rarely used. The debit
cards enabled their traveling employees to continue to pay expenses on the road
while the Coopers researched new credit cards.
If you’re trying to get a completely new bank loan,
your best bet may be community banks and local credit unions. They are more
likely to know your business, and compared to big, corporate banks, they are
more likely to provide access to senior managers, the bankers who have the
power to approve loans. Another plus: many of these smaller lenders are
verified Small Business Administration (SBA) lenders, so dealing with them will
raise your chances of securing a government-backed loan if you decide to apply
for one.
Apply for an SBA Arc Loan
Goal: Secure a loan of up to $35,000 to pay for any
debt you’ve accumulated during the recession.
The just-about-to-launch
href="http://www.sba.gov/recovery/arcloanprogram/REC_WHATISARCLOAN.html">America’s Recovery Capital
(ARC) program from the SBA is likely a good longer-term option if
you’re struggling to get credit. Part of February’s
stimulus bill, the ARC loan will help companies make payments on existing loans
such as credit card debt, but ARC is only open to firms that are at least two
years old and have been profitable for at least one of the past two years.
You won’t have to make payments for the first year and
will have an additional five years to pay back the loan. However, remember, you’ll
be dealing with an SBA lender that will have its own rules on issuing loans and
determining terms. You can use the money however you wish, as long as you’re
making payments on applicable debts.
If you’re planning to apply, be sure to polish up your
business plan. Not only will the bank need proof that you’re
experiencing financial hardship — such as tangible evidence of
decreasing sales and rising business costs — it expects to see
cash-flow projections for the next few years ahead to make sure you’ll
be able to pay back the loan.
Finally, act quickly: The loans are being issued on a
first-come, first-serve basis, and the government is doling them out until
September 2010 — or until the initial $255 million allocated by
Congress runs out.