You’re probably very aware that the world has just emerged from a recession, and from what was known as the credit crisis. You probably also know that the global economy is still on somewhat shaky ground.
If you’re hoping to start a small business in this economic climate, read on, because in this article, we bring you our tips for small business finance in a tough economy!
Look for business ideas that service basic needs, and the lower end of the market. Most financiers won’t be particularly interested in investing in businesses that provide luxury goods or services that most people can’t afford!
Offer surety. It will be a lot easier to find business finance in a tough economy if you have capital of your own, or something to offer as surety. Try to save up your own capital, or consider using fixed assets, like your home, to sweeten the deal for investors.
Scale down your plans. Look at your business plan, and consider how you can scale down your plans, and apply for less financing. This is particularly important if you’re going to be approaching a traditional lender, like a bank. Remember that they tend to tighten up their lending policies during economic crises, so you might not be able to access the same amount of funding.
Make sure that your business plan is watertight. Financiers may overlook small errors when times are good, but during a recession, or any other type of economic crisis, lenders will examine your business plan with a fine toothed comb before offering you business finance. So make sure your plan is completely watertight before you apply.
It’s certainly going to be harder to access business finance during a recession or an economic crisis, but it’s not impossible. It may even be a blessing in disguise, since the need to be frugal while you’re starting your business will probably set you up for a lifetime of careful spending, and that’s usually great for your business!
Business Benefits of Recession
The good news is that if you do manage to access business finance during a economic down-turn, or in a tough economic climate, there may be advantages for your business. In fact, some of the world’s largest and most successful companies were started during a recession, and even during the Great Depression! Some of the benefits to your business are:
Less competition. During an economic crisis, businesses tend to go out of business. If you find the right products and services to fill the void – at the right price – you may find that it’s easier to do business, and you have less direct competition.
Bargains on equipment and tools. Another benefit of starting a business during an economic crisis is that all those businesses that are folding will probably be selling or auctioning tools and equipment, and you can usually find bargain deals on the things you need.
Greater negotiating power. Your suppliers will probably also be feeling the pinch, and that will probably give you more negotiating power. You can use that to negotiate better prices, or better payment terms.
Cheaper prices. In most cases, during a recession or economic crisis, suppliers will automatically look for ways to supply goods or services at better prices. That will mean that it should be cheaper to operate your business if you start up during an economic crisis.
It’s clear that you can not only access business finance during an economic crisis, but that it might even work in your favour. So if you’ve been thinking about starting a business, don’t let the economy stop you. Plan accordingly, and you should find that you can still achieve your business dreams and goals.
This post is sponsored by Caban Investments – Caban Investments is an Impact Venture Capital firm, operating across Sub-Saharan Africa. They work with seed, early, and growth stage businesses with the intention to positively impact the environment, societies and economies they operate in. Website: www.caban.co.za