In the July Issue:

Part Two – Credit Access and Debt Restructure

Whether you run a startup with absolutely no revenue at all, or a $300 million company, you will most likely face an imminent “cash-zero” crisis at some point. What are your options when this happens?

In the June issue, we talked about cutting expenses and working with existing clients to generate some extra cash flow. Now we’ll look at credit access and debt restructure options.

Get Clear About Every Bit of Credit You Already Have Access To 

Yes – credit is scary if you’ve never used it before, or if you’ve ever been over-extended. But – if you qualify, and your alternative is bankruptcy, using existing credit and securing more credit are both good options to explore.

Here are a few key concepts that need to be in place for you to do that:

1. Be sure you understand the potential risks associated with credit, namely, not being able to pay it back. 

2.  Be ready to stomach a potential hit to your personal credit score by using more of your existing credit or opening new accounts.

3. Know that this will likely require a personal guarantee from you, and that is a serious commitment. If your company defaults on a payment, you will become immediately liable for the full amount borrowed, and any associated penalties.

Once you understand and accept those risks, then here are your sources for credit:

• Borrow from existing credit cards that still have credit available – personal and business. 
• Call your credit card company(ies) and ask for a limit increase.
• Call your credit card company(ies) and ask for an interest rate decrease.
• Open a new credit card (zero interest is great, but anything will do when your back is against the wall). Try in your company’s name – try in your own name.
• Open a credit line with your current bank. Try in your company’s name – try in your own name.
• Refinance your car if there is equity in it.
• Open a Home Equity Line of Credit (HELOC), a line of credit on some of the equity in your home.
• Find an ethical lending company that will let you take loans against your existing company assets (like Accounts Receivable and Inventory).
• LAST AND DEFINITELY LEAST: IF YOU’RE 1000% CONFIDENT YOU CAN CLIMB OUT OF THIS WITHIN JUST A LITTLE BIT OF TIME: Investigate a loan against your future revenues. But read the fine print on this agreement very carefully. You will never shake these lenders except in bankruptcy, no matter how nice they sound when they are selling this to you. These typically calculate out to about 50-100% interest loans, and very artfully bypass ever telling you that.

Debt Restructure: Call Your Debtors

Whether it’s a credit card, a bank, or even a friend – you can call your creditors to renegotiate or restructure your debt (without court protection at this stage). This one can feel challenging, but keep in mind that you’re not asking for something without offering anything in return. 

What you’re offering here is a new path to paying back your obligations. When the only alternative for your creditors is non-payment, they will likely be open to working with you.

Look at each of your debts, and think about how you could creatively work, with the people or institutions to whom you owe money, to restructure your debt and pay it back in a different way.

Here's a solid opening: “I owe you $10,000, but I’m in a heavy growth mode that’s taking a toll on my cash cycle. If we keep to the current repayment schedule, then two months from now, I won't be able to make any payments to you at all anymore. Neither one of us wants that. But you can help me… help both of us… and here’s how...” 

From there you can ask for: 

• A delay in payment: “I need a six month moratorium on my payments.” 
• A change in structure: “I want to bring my payment down and extend it over a longer period of time.” 

Remember, you’re not just asking for something for nothing. You want to pay back your creditors and keep your business going, and your creditors want to be paid back. Working out a deal will benefit both of you.

A final option, when you are facing insurmountable debt, is to file for bankruptcy protection with the courts. That sounds very drastic, and it is, so I will save the how-to on that for another article or series. 

Remember, all entrepreneurs go through ups and downs with cash flow. It’s the nature of the entrepreneurial beast. Whether you are bootstrapping or have investors, there comes a point when there's no extra money to add from your own coffers or from investors. Before you even begin to consider the bankruptcy option, though, take a strategic walk through the options outlined in this two-part series.

Meet Pam Prior -  FOUNDER OF PROFIT CONCIERGE

The dynamic opposite of every green-eyeshade accountant you’ve ever imagined, Pam is the author of “Your First CFO: The Accounting Cure for Small Business Owners”; a best-seller that makes finance fun and accessible for entrepreneurs; she is also the entertaining and informative host of the “Cash Flow” Podcast on iTunes; and founder of the novel new Profit Concierge™ experience for entrepreneurs.

With Profit Concierge™, Pam weaves together all of the components – bookkeeping, accounting, forecasting, cash flow - into one seamless and totally new Finance Experience for entrepreneurs, clearing away the muck, and allowing them to focus on their goals with full peace of mind.

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