Source: Arkansas SBDC
When the pandemic swept the world, causing great stress on small businesses, the Small Business Administration (SBA) responded by creating the COVID-19 Economic Injury Disaster Loan (EIDL). Small business owners could apply for this government-provided loan, and the terms were favorable: 3.75% interest for 30 years with a 30-month payment deferment. Many small businesses survived the pandemic in large part due to EIDL. But now, the deferment period is coming to an end and small business owners are asking, “How will I make these payments?”
Looking at the current economy, EIDL debt is very attractive debt. The maturity term for the debt is long, and the rate is just over half of what today’s commercial loan rates are. Therefore, refinancing this debt is not advisable for the vast majority of borrowers. Instead, small business owners concerned about making their EIDL payments should take a close look at the cash flow of their business.
If you are a business owner with an Economic Injury Disaster Loan (EIDL) that is coming due, here are four cash flow strategies that can help you manage your payments:
1. Perform a Cash Flow Analysis
Analyzing your cash flow will help you determine exactly where you stand financially. When you know where you stand, you can compare yourself to your peers. Are you managing your business’s finances more efficiently than those within your same industry? If you are challenged with generating more cash than you’re spending, consider limiting your spending to essentials needed to serve customers. Often, small business owners forget about small recurring expenses, which can add up quickly.
2. Track Cash Flow Trends
As you continue monitoring your cash flow, keep a close eye on the internal and external factors that impact your small business. Small business owners often times forget an important piece of the puzzle: identifying reasons for the increased or decreased performance, such as a major snowstorm. Successful small business owners often keep a narrative journal that accompanies the traditional financial statements and explains variations in financial performance over time.
3. Convert Assets to Cash
The most obvious way to generate cash from your company’s assets is to sell the inventory. Take a look around your shop or your warehouse. Do you have extra furniture, fixtures, or equipment? If so, consider cleaning house and selling items. This activity can generate cash inflow that is helpful in servicing debt or building a larger safety net. Another asset to examine closely is accounts receivable. Many businesses dread managing their billing, but it is important, especially in times of cash shortages.
4. Communicate Early and Often
Finally, for as long as you own your business, you will need to communicate openly with your bank and creditors. Do not hide financial difficulties from them. They are invested in your business and are there to support you.
The SBTDC can assist you in managing your cash flow more effectively. For more information and additional resources on financial and other small business best practices, contact us.