As the recession continues and a fall lockdown looks increasingly likely, banks are becoming more risk-averse than usual. HSBC, Europe’s largest bank, has taken serious profit losses and is tightening up its loan process. Other banks are setting aside billions of dollars to cover bad debts and prepare for a long-lasting recession. Here in the US, the Federal Reserve couldn’t get banks on board with its emergency lending program.
All of this means that banks are more hesitant than usual to lend to entrepreneurs and risk-takers – bad news for small business government contractors as the Paycheck Protection Program ended on August 8 and award season is just a few weeks away.
Economic troubles are likely here to stay until at least early 2021, but there are a few ways you can reinforce your company’s strength regardless of outside circumstances:
- Increase your savings by cutting expenses. This will give you more cash on hand if things go south or if you need to prove creditworthiness to a lender. Right now, running efficiently is more important than ever; increasing savings will allow you to retain staff and keep operating at full capacity.
Be creative with this tactic. Can your entire company go remote, allowing you to end an office rental or sell an office? Can the company reduce travel expenses for the sales team, or temporarily eliminate a company benefit like gym memberships that aren’t likely to be used? You may also want to consider reducing executive compensation. This painful step gives your company the extra cash on hand to survive the pandemic and be ready to scale – and can bring exponentially greater financial benefit to executives if the company is able to grow faster due to these steps.
- Find a good lending partner who can help you create leverage for growth — such as hiring someone last-minute or purchasing assets needed to fulfill a large contract. The right partner will give you cash flow to hire new staff, purchase products to fulfill a contract, and purchase company assets like computers or warehouses. That same partner will also have your back if you need to keep paying staff after losing a contract or facing delayed payment.
The right loan with the right partner doesn’t just pay for itself. It creates more value for your company by making it stronger and more competitive for future opportunities.
- Prepare multiple likely scenarios to be prepared for any outcome. What’s your plan if you lose a contract – are you going to seek a loan, lay off staff, or take other measures? If you get a bigger-than-expected contract, what types of credit will best serve your company’s needs? What if your new contract requires spending one-quarter of the gross revenue on product purchases upfront – but you only have 10 percent cash on hand?
Most banks aren’t able to respond as quickly to the needs of small-business government contractors even when the economy is in good shape. Here at Parabilis, we’re flexible to your specific needs. We believe in partnering with your company and helping it grow. When your business is established and you don’t need our services anymore, we’ll consider ourselves successful.
Being prepared for award season will help you power through these uncertain times. Contact us today to get started.