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Written by: Elijah McCoy
Small business owners often take out loans to start or expand a business, but lately a new reason is prompting business people to borrow money.
Inflation.
Unable to keep up with the rising costs of producing their goods or services, these small business owners hope that an influx of cash from a lender will help see them through.
But the trick, as with any loan, is finding the right lender to do business with, says Elijah McCoy, CEO of McCoy Brokerage Service.
“Different lenders target different types of investments,” McCoy says. “One of the keys is to match your objectives with the most appropriate lender in the most timely manner.”
Loans aren’t the only ways that businesses have addressed the rising costs of doing business. They have raised prices, trimmed staff, and taken other measures to try to bring their costs under control.
But more business owners are finding that a loan, like it or not, is their only way forward to keep operating. The U.S. Chamber of Commerce, in its quarterly Small Business Index, reported that 39% of small business owners said they have taken out a loan in the past year to manage higher costs caused by inflation.
Similarly, the Associated Press reported that a Federal Reserve survey found that while at one time most business loans were for expansion, in the last year the majority have been simply to cover day-to-day expenses.
McCoy points out that when the COVID-19 pandemic began, the federal government created a Paycheck Protection Program that provided loans to small businesses to help them keep their workforce employed. But that program ended a year ago.
McCoy has tips for business owners who are struggling with inflation and need a loan to tide them over:
- Check with the Small Business Administration. The Small Business Administration provides loans both small and large. McCoy says SBA offers loans that can be used for most business purposes, including operating capital that business owners hit hard by inflation might be in dire need of.
- Shop around. Interest rates are also on the rise, so business owners should explore multiple lenders to make sure they are getting the best deal, McCoy says. Also, the interest rate isn’t the only thing to consider. Compare other loan details, such as the length of time you will have to pay the money back and how quickly you will have the money.
- Beware of predatory lenders. Sometimes people who claim they can provide help in securing loans aren’t on the up and up, and business owners find themselves scammed out of thousands of dollars. “It’s a common situation, so it’s important for business owners who are looking for loans to check out who they are dealing with,” McCoy says. He recommends against paying money upfront. He also says business owners seeking loans should check the clientele of the person they are doing business with and read contracts carefully.
- Don’t give up. Lenders at times can be stingy with money, but McCoy says he urges his clients not to give up when they receive that first rejection. Or even the second or third rejection. “It takes some effort, but the right lender is out there; you just have to find them,” he says.
“When the economy shifts, business owners always need funding to sustain their businesses,” McCoy says. “Successfully securing that funding can be the difference in whether a business continues to thrive.”