To a large extent, the economic plunge has been due to loaning patterns which were far too flexible. An inability to pay these loans off on the part of the borrower meant that the lenders themselves ended up cash strapped and went belly up.
As a result, lenders are far more cautious when it comes to fronting money to individuals – for any purpose at all.
Even if you pass the stringent credit and background checks, have a sound business plan, and can make a convincing presentation odds are you still won’t get those business startup funds for a couple of months – when it will then be approved at a high interest rate.
This next installment in our series of articles about small business recession planning will discuss some ways to raise business funds and keep them coming during hard financial times.
Look For Government Incentives
One of the odd things about the financial cycle is that when private industries, including banks, start tightening their belts, public institutions (and that means government) start to open up.
The reasoning behind this equation is fairly simple.
Governments are interested in increasing the financial growth of an entire country, whereas banks are interested only in corporate profits. During a recession, banks protect themselves by retreating, whereas the government protect themselves by taking a greater interest in funding.
In short, the government wants to stimulate the economy so that revenue keeps coming in (more business equals more taxes and that means revenue to fund government programs).
It’s a principle that was first applied by Roosevelt back in the ’30s (and yes, we know it took WWII to really yank the country out – but the point is that the New Deal DID halt the downward slide until the economic ball got rolling again).
The point is, government funding is the place to look for start up money in a recession, rather than public corporations.
Government programs have a mandate which makes them pre-disposed to lending the cash that can help start businesses up which in turn will stimulate the economy, so it’s easier to get money out of these institutions during a recession.
Look to them before anything else if you need seed money.
Market Aggressively
A recession means that the old way of doing business has failed and it’s time to usher in some new methods.
New companies and new strategies are the name of the game, but it takes some time for people in general to realize this.
What it means for the small business start up is that you need to get the word out through an aggressive marketing campaign.
Make sure you hit all the nails on the head as squarely as possible. Tell people why they need your product or service and why you are better than anyone else.
If you can, work in the recession angle as much as possible. This will help people see that you identify with their situation, and it will also allow them to make favorable comparisons between you and the next small business.
So far, we’ve taught you what businesses to start, how to build a strong business foundation, what pitfalls to avoid (and how) and how to raise funds.
Our next and final article in this series will delve into how to survive in a recession – by being a flexible and reliable business.
