Slow Economy Can Bring Opportunity for Small Businesses

In tough times, sell harder. Many small companies are adopting this strategy to cope with declining sales, according to the latest report on small business trends from the National Federation of Independent Business.

What else are companies doing? Forty-four percent of owners are spending more time at work and most business owners are paying closer attention to cash flow. Twenty percent have reduced, postponed or canceled a planned investment or reinvestment in the last six months.

But companies that want to expand can take advantage of a move by the U.S. Small Business Administration. The SBA recently raised the ceilings of the value of the firms that may qualify for the popular SBA 504 lending program.

Now, companies with a net worth of up to $8.5 and as much as $3 million in annual earnings may borrow an SBA 504 loan. The loans are provided by the SBA, local lenders and certified development companies such as the Indiana Statewide Certified Development Corporation.

These loans are aimed squarely at helping small businesses that are buying land, buildings or equipment.

The SBA is raising the ceilings (from $7.5 million in net worth and $2.5 million in average earnings) because it recognizes that higher costs increase the number of businesses defined as “small.” It also wants “504 graduates” to continue to expand by using the program.

The SBA is also trying to assist more small businesses with their expansion plans in hopes that these companies will create more jobs. This is one way to turn the economy around.

Business owners need to decide if they want to take advantage of the loan money made available to them. More access to alternative capital such as the 504 program may be a great opportunity for businesses that are successfully controlling costs and finding markets in these difficult times.

Generally businesses that survive tough economic times are well poised to reap the benefits when the economy starts growing again. This may mean slimming down, or it may mean expanding while the competition is falling away.

Before applying for a business loan, companies should examine every part of their operation.

For example, $4-a-gallon gasoline should force companies to downsize vehicle fleets, combine routes, schedule fewer deliveries and rely on the U.S. Postal Service or commercial delivery companies.

Companies may give up or curtail paid parking and employees could ride public transportation and in car pools. Some businesses are looking at 4 day work weeks – but trying to balance the potential savings with making customers happy.

The same rules govern loan applications in good or bad economies: a company must write a plan that foresees various possible business conditions. Before writing that plan, owners must document every aspect of the business that will affect sales, marketing, employees and the physical plant.

Established businesses should provide a financial statement for three years, a schedule of term debts and aging of accounts receivable and payables. New companies need to project their opening day balance sheet.

Lenders also need to be more efficient by spending fewer hours reviewing loan applications. A smooth approval process is good for all concerned. If the borrower is fully prepared, the lenders must be ready to act.

Staying strong in a weak economy calls for maximum creativity. Every business owns a “salable difference” that may help it survive. If you are a business owner, look at what others in your field are doing – or not doing.

For example, many Indiana communities are attempting to capitalize on high gas prices by encouraging Hoosiers to drive shorter distances this summer.

Berne in northeast Indiana touts its resemblance to Switzerland and its Swiss and Amish heritage. If Japanese farmers can come to the area to study farming techniques, why can’t Indiana residents enjoy the town’s Swiss village?

In other words, play to your strengths and cut costs. Opportunities to succeed in business still exist, but companies – and communities – must be smarter than ever.

Jean Wojtowicz is president of Cambridge Capital Management Corporation, a professional manager of non-traditional finaincing sources, in Indianapolis.