Contingency Business Planning For Small Business Finance
Small business planning takes many forms, but an underutilized variation involves contingency business plans involving commercial financing needs
. This specialized form of strategic planning focuses on the possibility that something could go wrong with working capital loans, commercial mortgages or other critical financial agreements such as those with key suppliers. While some might view this as a hypothetical exercise that is not worth their time, the economic and banking events of the past five years have made it clear that unexpected results can happen suddenly. Anticipating and planning for these possibilities should be increasingly recognized as prudent management rather than a waste of time.
Some business owners might be unsure what could really go wrong with something like their commercial loan agreements involving a bank. Unfortunately many small businesses have already learned the hard way what is really at stake here. For example, very few companies could survive without at least some routine business financing help such as funding to purchase inventory, buy needed equipment and cover expansion costs. For those who own their buildings, commercial mortgages are probably taken for granted as a way of gradually paying for a major expense. As normal as all of those examples are, banks have changed in unexpected ways that have made all variations of small business loans less feasible.
These banking changes were first seen well before the beginning of bank bailouts in 2008. Banks were initially observed to be taking much longer to approve business financing. Then the commercial loan well seemed to run dry, but everyone was reassured that the bank bailout would fix everything and make it better. That did not happen. At first banks painted a picture of a temporary hiccup in lending that would vanish within a few days or weeks at most. The weeks have now turned into months and years.
Most small business owners have not only experienced extreme difficulty in obtaining new commercial funding but have also seen existing working capital lines of credit and commercial mortgages cancelled with little or no advance warning. Banks will repeatedly emphasize that their loan agreements legally allowed them to take such action. Small businesses are left to wonder why this happened and what they should do. Why were the banks bailed out if they were not going to make loans to help the economy keep going? What could go wrong? A prudent response to these valid concerns is to anticipate even worst case scenarios and formulate a contingency business plan that identifies alternative business solutions in advance.