20 Strategies To Safeguard Your Business Credit During A Crisis
In times of crisis, safeguarding your business credit is critical to maintaining financial stability and ensuring access to future funding. Unexpected challenges can strain cash flow and jeopardize your creditworthiness, but proactive measures can help protect your business’s financial health.
Here, Forbes Finance Council members share approaches you can take to preserve business credit during challenging periods. Read on to discover why these steps are critical for long-term resilience.
1. Prioritize Preparation And Flexibility
Preparation and flexibility are key to protecting your business credit during a crisis. Not all credit is created equal, and securing favorable financing terms and lines of credit is essential. Businesses generally don’t adapt fast enough during crises, so it’s important to negotiate the best rates ahead of time, anticipate expenses and build reserves to avoid costly debt. - Eyal Lifshitz, Bluevine
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2. Forecast Your Business Under Multiple Scenarios
It is advisable to model and forecast your business under various scenarios—for example, low case, base case and high case. Then, from a cash perspective, run the business managing the low case. In addition, it is always easier to access credit when you do not need it. Therefore, I would recommend putting credit lines in place in advance of actually needing to utilize them. - Manoj Jain, Maso Capital
3. Prioritize Payments To Credit Reporters
You can prioritize your payments by paying suppliers and vendors that report to the credit bureaus first. This ensures that you don't jeopardize your ability to continue to deliver your products or services. - Jeorgia Brown, The Budgetnista
4. Categorize Your Expenses As 'Essential' And 'Non-Essential'
Start by reviewing your current and upcoming expenses, categorizing them as "essential" or "non-essential." List non-essential goods or services you can cancel or pause. Communicate with vendors to keep them informed and have a clear request (for example, additional days to pay an invoice). Ensure you can meet your proposal. If possible, make a small "good faith payment" to show your commitment. - Zach Brody, Lumiere Financial
5. Find Other Sources Of Capital Outside Lines Of Credit
In a crisis, businesses may resort to using lines of credit to meet short-term cash flow needs. This may affect the credit of the business and add to overall risk. An alternative source of capital may be obtained from cash-value life insurance policies. Funds can be accessed immediately via withdrawal or policy loans with no financial underwriting and avoid the need to use lines of credit. - Ryan Loynd, BrightGuide Financial
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6. Create A Separate Crisis Fund
Establish a crisis fund separate from your primary accounts. This reserve allows you to make timely payments even during cash flow disruptions, protecting your business credit from damage. - Richard Polgar, CFG Merchant Solutions
7. Manage Your Cash Flow At The Unit Level
Managing cash flow at the unit level is crucial. By identifying which units drive profitability and which underperform, you can make quick adjustments. Building strong relationships with financial partners before a crisis is key. Lenders are more flexible when they've seen solid performance, helping you navigate challenges. Proactive cash flow management ensures stability and long-term success. - Patrick Galleher, Boxwood Partners
8. Communicate Proactively With Lenders And Creditors
One way to protect your business credit in a crisis is to communicate proactively with lenders and creditors. If you're facing financial challenges, reach out early to negotiate revised payment terms, deferments or lower interest rates. This shows responsibility and helps prevent missed payments or defaults, which can negatively impact your business credit score. - Ravi Gullapalli, Fastra Investments
9. Establish A Good Relationship With Your Bank
Having a good relationship with your bank so you can talk to them during tough times, and being proactive ahead of the crisis will help. Also, cutting expenses that are redundant or unnecessary will help the bottom line. Improving your invoicing process to bill clients quickly will also increase cash flow. If you are having a collection problem, this will be the time to get that in order. - Nike Ajao, OneBarrow Corp.
10. Plan Ahead Before You Are In A Crisis Situation
To protect your business credit in a crisis, it’s important to plan ahead before a crisis ever hits and establish relationships with lenders and your bank. Having pre-approved lines of credit or existing connections with lenders can provide critical liquidity during a downturn without risking your creditworthiness. Having strong relationships with your bankers can also help when problems arise. - Trixy Castro, TRX Capital
11. Communicate With Your Creditors Early On
Prioritize communication with creditors. If you anticipate cash flow issues, reach out to creditors early to negotiate payment terms, deferments or extensions. To protect your business credit during a crisis, renegotiate payment terms with creditors. you can approach a new lender with better terms. Get more favorable conditions, such as lower interest rates or extended repayment periods. - Tomas Milar, Eqvista Inc.
12. Establish A Relationship With Your Creditors
Know your creditors and try to build a relationship with them, ideally before you hit the crisis. This way, if you hit a rough patch, you can have an open conversation and work with them on the best way to solve the problem. If your underlying model remains solid, there is a high chance that the terms can be amended to work for you, as well as for your lender and nobody needs to lose money. - Mitja Sadar, SKROL Capital Inc.
13. Consider A Strategic Barter System
Establish a strategic barter system among your connections by exchanging products or services instead of relying on cash. You will save money and strengthen business relationships. - Neil Anders, Trusted Rate, Inc.
14. Ensure You Have A Strong Cash Reserve
Establish a strong cash reserve or access to emergency funds. For instance, creating a line of credit—before the crisis hits—is essential. - Anushree Jain, Titan
15. Establish Multiple Banking Relationships
Diversify your banking relationships. Split up your accounts across multiple banks or financial institutions. Two important purposes this serves: It reduces your risk exposure if one bank faces financial difficulties, and it also allows you to maintain relationships and access to credit and capital from multiple sources. - Bob Chitrathorn, Wealth Planning By Bob Chitrathorn of Simplified Wealth Management
16. Create A Robust Cash Flow Management System
Establish a robust cash flow management system to ensure liquidity during a crisis, enabling timely debt payments. This proactive approach maintains your creditworthiness, mitigates the risk of default and safeguards access to future financing. - Sumeet Grover, Alliant
17. Reprioritize Your Obligations
One way to protect your business credit in a crisis is to engage your creditor and reprioritize your obligations. This will involve evaluating your cash flows—inflow and outflows—to maximize and optimize your operating expenses and cash requirements. - Oluwatoyin Aralepo, Africa Finance & Strategy Hub
18. Obtain A Line Of Credit Before A Crisis
One practical way to safeguard your business credit during a crisis is to establish a line of credit in advance. The organization needs to monitor their credit risk, liquidity risk and solvency risk and have sufficient funds to support cash flow, cover essential expenses and keep operations steady during tough times. This preparation will protect the brand's reputation and ensure stakeholder confidence. - Shivali Kukreja , NIB NZ
19. Come Up With A Recovery Plan
Create a recovery plan: Develop a detailed plan outlining how you intend to manage your business credit and repay your debts over time. Share this plan with your lenders and creditors to demonstrate your commitment to repaying your obligations and maintaining a positive credit standing. - JD Morris, RHC 21 LLC (a SPE Fund) with family of Special Purpose Entities (SPE or SPV)
20. Monitor Your Credit
You should ensure proper monitoring of credit utilization. Then, set and keep within the limits, and ensure timely payments. - Richard Okon, St Nicholas Hospital