How negative equity affects business financing
Many business owners face the financial problem of having negative equity in their business. This often happens when the economic conditions become difficult and many businesses find themselves with more liabilities then assets. Business owners who find themselves in this situation often report that they don't have enough cash to run their business. In addition, this situation can make finding a lender who is willing to loan your business money next to impossible. However, if you do not quickly deal with the situation of having negative equity you may find that your business is facing a complete failure. Here is what you need to know about how negative equity affects business financing-
- It's hard but not impossible to find a lender-Business owners who have negative equity often despair of finding abusiness lender who will work with them. The reality is that while it is hard it is not impossible. There are some lenders who will work with your business however, you will need to be prepared to pay a higher interest and have less then ideal loan terms. You will also have to be prepared to work hard to show any potential lender that you can turn the situation around and make your business profitable.
- You will need to be working on the cash flow problem-If you have negative equity then most likely you have a cash flow problem. In order to save your business and even attract a lender you will need to be working on your cash flow problem. You will need to reach out to your customers and begin collecting on your accounts receivables. You may need to set up a stricter payment policy for the customers that you have extended credit to so that they will be motivated to pay you on time and in full.
- Debt consolidation can be the answer-For some businesses the use of a debt consolidation loan can be the answer to dealing with negative equity. Business owners who find themselves in this situation will need to be prepared to pay a much higher interest rate. However, many times when debt consolidation is used business owners find that they can regain control of their business finances and move their business toward positive equity.
- You will need to consider using collateral for a new loan-There is no getting around the fact that if your business is experiencing negative equity you will need substantial collateral for any new business financing. Few lenders will be willing to loan your business money if they cannot have the assurance of some collateral. However, a note of caution should be extended here. You should never offer anything as collateral that you cannot afford to lose. Far too often overly hopeful business owners have faced the reality of having their car, house, or other expensive asset taken when they default on their business loan.
- Keep a good relationship with your vendors-You may be surprised to learn that your vendors can play a major part in helping you deal with negative equity. If you have been an on time paying customer you may be able to negotiate better terms with your vendors while your cash flow problems are being worked on. However, keep in mind that while your vendors want to keep your business they are in the business of making a profit, as well and won't extend these terms to you forever. You should be prepared to have a plan as to how you are going to turn this situation around and make your business profitable in as short a time as possible.