How to Manage Business Credit and Your Business Credit Cards During a Recession

I can’t think of a time when it isn’t important for a business owner to be on top of his or her business credit, but it’s even more important during a recession. How you do things now will not only impact your business’ ability to access borrowed capital today, when credit is tight and lenders are reluctant to work with businesses with a less-than-perfect credit profile. How you protect and build your credit profile will also impact your ability to access capital on the other side of our current economic challenges.

In other words, your credit matters more now than ever.

I’m encouraged that more small business owners are engaged in this important part of running a business compared to pre-Covid. We’re seeing roughly twice as many people reaching out to us at Nav to learn more about their business credit because they understand it will help them better prepare their businesses for when they need our help finding the right financing for them.

You can’t afford to be passive in the relationship you have with your creditors. It doesn’t matter if it’s a small business lender or a vendor, make sure you communicate with them if it gets challenging to meet your obligations.

Speaking of your suppliers, they are probably the most friendly creditors you have. That being said, they are really watching how you use your credit right now, just like a lender would. Yet, because they also want to see your business succeed, there’s a more flexible dynamic than the bank or other small business lenders.

It’s a good time to get on the phone to negotiate for better terms. Increasing net 30 terms to net 90 terms may be possible simply for the asking. Often they will give you better terms because it’s a win/win situation for both of you. They want to move their products and your business helps them do it.

If you aren’t working this way with your suppliers, you should. It’s a much less risky type of credit and is easier to get during an economic downturn like we’re facing right now.

If there are times you need a little leeway, suppliers are also the most likely to allow you to push an invoice out a little longer to get some breathing room. Over the years I’ve needed to do this a time or two and have appreciated the vendors that worked with me through a short-term financial pinch. 

If you’re in this situation, and you have a supplier that is willing to work with you, make sure there aren’t any automated systems that could report your agreed-upon delayed payment as a late payment to the business credit bureaus. Years ago, I worked out an extra 60 days with a supplier on one occasion only to have their accounting system automatically notify Dun & Bradstreet that my payment was late–adding a negative notation to my business credit history.

The same is true for any small business loans or lines of credit you may have. I learned that by communicating with my creditors over time. In fact, because of the nature of this crisis, this is probably the first time where you should be able to talk to your creditors and make a deal. It feels to me like most financial institutions appreciate the value to their brand of working with your business now, because they know this will eventually end and they’re going to want to keep doing business with you when this is over.

In other words, it’s a new world today. Get on the phone with your creditors. Don’t run and hide from them. The businesses that proactively reach out to them are more likely to find success renegotiating terms, lowering payments, or lowering an interest rate.

They really don’t want to foreclose on your restaurant. They really don’t want your business assets. To protect your business and yourself, you need to reach out to them before you are in dire straits when there’s time to make a deal.

Your business credit cards can help you maintain your business credit and help you weather a storm like this if you approach your business credit card debt strategically. For starters, if you have to carry debt, it’s better to revolve debt on your business cards than it is on your personal cards. It’s just not a good idea, from a credit management standpoint, to revolve on your personal cards.

With that said, credit card providers are reducing limits and closing cards that aren’t getting used, so avoid the temptation to revolve all your credit card debt on your favorite business card. If you have more than one card, spread it out over all of them. It will help you keep as much credit available to you as possible.

I learned that lesson the hard way in a previous recession. The credit card I used the most cut my available credit in the middle of a business trip–meaning I had to make a couple of harried phone calls from the road. Fortunately, because I called, they reinstated my limit so I could use my card. I now regularly use more than one card so that doesn’t ever happen again.

Be proactive with your credit card providers. They are most likely to cancel the cards (or reduce the limits on cards) that either aren’t used or the user has gone dark. If they occasionally hear from you and you’re using their card, you won’t be at the top of the list of cards in jeopardy.

This is not advice I share lightly nor is it advice I would offer under normal circumstances.

Preemptively run your business credit cards for a cash advance you can put in the bank as a safety net. A little bit of cash in reserve gives me some peace of mind in times like these–even if it means revolving the debt on a business credit card and making the monthly payments.