Cash Flow in a Bad Economy: Securing Your Bank Accounts and Small Business Loans

The following is a guest post to SD Bankruptcy from Patrick G. Mackaronis. Patrick is the Director of Business Development for New York City-based social network Brabble. In this post, Patrick dives into the delicate topic of cash flow in a rough economy, and how to secure bank accounts and small business loans from being threatened as a result.

As a small business owner, one of your top concerns right now may be your bank. Not only are entrepreneurs worried about business and personal bank accounts in an volatile economy, but there is a big concern about the availability of small business loans that may be needed to keep the company going while customers are tightening their belts as they adjust their own budgets.

Sandy Baruah, Acting Administrator of the U.S. Small Business Administration, said in an interview with MSNBC that the most important thing right now is to “reaffirm your relationship with your financial institution”. Mr. Baruah went on to say that private institutions reduce their risks with small business loans backed by the SBA as these loans are guaranteed up to 85%.

Assess Stability of Your Local Financial Institutions

While experts agree that the best chance of securing small business loans in this economic climate is your local banker, you can take steps to identify the best local bank to approach. The Federal Financial Institutions Examination Council website allows you to view your local FDIC-covered institution’s call report. The total risk-based capital ratio is found on schedule RC-R. A bank with a higher ratio is better capitalized, and therefore may be more approachable to consider a small business loan, or a SBA-backed loan.

FDIC deposit insurance has been raised by Congress from $100,000 to $250,000 per depositor. If your bank has a low ratio, you may want to investigate moving funds over $250,000 to another financial institution.

The Federal Deposit Insurance Corporation offers up-to-date information on the stability of the banking system in the United States, allowing you to make educated decisions on your business accounts.

Be Prepared to Ask for a Small Business Loan

If you find yourself in the position of looking for credit, you will greatly benefit by having laid the groundwork and being able to show your lender you have taken steps to protect your business from the impact of an economic downturn:

  • The first requirement for a business loan during an economic downturn is a solid business plan with an up-to-date financial statement. As your projected income and expenses change, your business plan should be adjusted to reflect the current circumstances.
  • Monitor your business credit profile as it highlights how other businesses see you. Your friendly banker may not be the final decision maker in a small business loan.
  • Show that you have taken steps to be proactive in collecting customer debt to improve your cash flow.

Armed with these basic business financial strategies, you are now free to concentrate on other areas of keeping the door open for business.