Help! I've Got a Business Credit Emergency!

We've all been there. Bad credit that prevents your business from getting that all-important loan. Or maybe it's a reliable client that suddenly declares bankruptcy, leaving you with a pile of unpaid invoices. Or a customer that takes too long to pay its bills, jeopardizing your ability to make payroll. These credit emergencies are all part and parcel of running a business. The following guide is designed to help you extinguish the fires and get your business back in winning form.

What's Your Credit Emergency?

1. I Need to Fix My Business Credit Now!
2. My Customer Is Bankrupt! What Should I Do?
3. I'm in Danger of Missing Payroll!
4. I Need Help Getting a Business Loan!

1. I Need to Fix My Business Credit Now!

There's nothing worse than bad business credit. It can cause companies to stop doing business with you and can make it very difficult to land a loan. Even if you do find a lender, the jacked-up interest rates and associated fees will make the cost of borrowing that much greater.

But don't despair. You can improve your business credit. It won't happen overnight, but with a little time, hard work, and perseverance, your business credit will be back in shape. Keep in mind that there is no easy fix. Some people will claim to be able to instantly repair your business credit. The reality is that no matter how much you pay someone, they can't magically fix your business credit profile anymore than you can.

Still, a reputable credit repair firm like Lexington Law, MyCreditGroup.com, or Ovation can put you on the right track.

You can also proactively improve your business's creditworthiness by following these critical steps:

• Review your business credit report regularly. Begin with this simple step: Get your credit report copy regularly and review it carefully for errors and omissions. If you see accounts that aren't yours or false negative activity, address these inaccuracies immediately.
• Make sure your prominent supplier relationships appear on the credit report. Are timely payments to suppliers and lenders reflected in your profile? If not, you are missing out on a key opportunity to improve your credit. Ensuring the inclusion of key supplier and credit accounts will have a positive impact on your report.
• Always pay on time. Nothing impacts your credit score more than your ability to pay back loans in a timely manner. This is the most direct way to improve your credit rating.
• Keep your debt down. The capital structure of your business -- that is, the extent to which you use equity or debt to finance your operations -- is an important determinant of your creditworthiness. If other companies see a lot of debt on your balance sheet, they are less likely to extend credit as you pose a greater risk of default.

2. My Customer Is Bankrupt! What Should I Do?

Nothing irritates a business owner more than not getting paid for products or services rendered. But just because a customer suddenly files for bankruptcy doesn't mean you'll be left out in the cold. Here are some things you can do to protect your interests and maybe even get paid:

• First and foremost, don't attempt to collect any outstanding payments. The filing of bankruptcy means there is an automatic injunction that prevents you from pursuing your customer and its property.
• Stop all shipments, even if you have to turn the trucks around. The good news is that you can stop making deliveries unless you are paid in cash. The not-so-good news is that you might still have to make deliveries if your contract requires you to supply goods or services on an ongoing basis, even though your customer is in bankruptcy.
• Attempt to reclaim goods that have already been delivered. Depending on which state you live in, the Uniform Commercial Code allows you to make a demand in writing to reclaim delivered goods. Your demand must be made within 10 days of your customer's receipt of the goods. But even if you make your reclamation demand in time, the bankruptcy court might not allow you to get the goods back. Why? Because the goods might be subject to another creditor's lien or be necessary to keep the debtor's business running.
• Cancel out the debt. Do you purchase goods and services from the bankrupt customer as well as provide that customer with your own goods and services? If so, you might be able to cancel out the debt you owe the customer against the one the customer owes you. Also, make sure you are not processing any checks to the customer. If you are, you might want to put an immediate stop on those checks.

3. I'm in Danger of Missing Payroll!

How's this for a nightmare scenario: It's the end of the week and your employees are eagerly awaiting their hard-earned paychecks. The only problem is that your bank account is empty and you don't have the money to pay them. That's not a place you ever want to be.

But the fact is that even good business owners can find themselves in a bad position. That's because some customers, even your best customers, can be very slow when it comes to paying the bills. Large commercial and government clients, for instance, are notorious for taking as many as 60 days to pay their invoices. But you have bills of your own that need paying, and sooner or later you're going to find yourself in hot water.

Here are a few simple steps you can take to lower the heat and relieve the pressure:

• Put together a cash flow forecast immediately. When times are tough, no better management tool exists than a cash flow forecast. Knowing your exact cash position right now is critical. For instance, a cash flow forecast can help you time your payment to vendors so they get paid just enough to keep them happy, and still provide trade credit. Also, try selling obsolete or slow-moving inventory on Craigslist or eBay. Any money obtained will improve cash flow. The same goes for selling unneeded equipment.
• Scrutinize your accounts receivable. The goal is to see if you can squeeze out any more dollars by intensifying your collection efforts. Consider offering a good customer a major discount (more than 2 percent) for paying earlier than terms. By the same token, use promotions to increase the average sales value of an invoice. For example, if your average sale is $40, try to increase it to $50 by offering a special such as "buy two at the regular price, get the third at half price."
• Look for wiggle room in your accounts payable. See if there are any trade vendors that are scheduled to be paid this week that can be put off until next week. Communicate with your payables vendors so they are in the know about your short-term cash issues.
• Consider factoring. If your cash flow forecast shows multiple weeks of shortfall, consider using a factor -- especially if you can't get a bank line of credit. Factoring is a type of business financing that provides you with an advance on your soon-to-be-paid invoices. By accelerating your invoices, you get the working capital you need to run and grow your business. But do your due diligence. Factoring companies are as different as night and day.

4. I Need Help Getting a Business Loan!

In today's constrained credit market, getting a loan is harder than ever. That's why it makes sense to use a financial intermediary (i.e., a loan broker) to assist with obtaining business loans. If your business is turned down for a bank loan, a business loan broker can help you secure funding from alternate sources.

Loan brokers can also help you choose the best loan for your business at the best rate, making the process as simple and seamless as possible. When you use a good commercial loan broker, you can often save substantial amounts of money in interest and fees, have better loan covenants negotiated, and end up with a loan that better serves your business needs.

But finding a good loan broker can be difficult because there are no trade associations to get recommendations from and most intermediaries work for themselves. Many CPAs and business attorneys know good loan brokers who can help you, so don't hesitate to ask one of your trusted advisors for a recommendation. Often, CPAs and business attorneys perform this service directly.

In 98 percent of cases, a good loan broker won't charge you any upfront fees and will work on a commission basis. For many loan types you won't be paying the broker directly, the lender will.

Here's what you should expect from a good financial intermediary:

• A highly professional, knowledgeable expert that stays up-to-date on the constantly changing trends in the lending world.
• Someone who can give you a minimum of three references for the type of loan you are seeking. Call the references and ask them if they would use the broker again.
• Someone who doesn't put "a square peg in a round hole." In today's niche lending world, there are specialty lenders that are spread out all over the U.S. Sometimes niche lenders are the best fit for you. A good intermediary will take time to find the lender that fits your company's personality and needs.

Keep in mind there are both reputable and not-so-reputable lenders. A good loan broker will have a strong working relationship with reputable commercial finance companies and know which ones to avoid. Using a qualified financial intermediary can make borrowing a much more pleasant experience, save you substantial money, and help you achieve positive results more quickly than setting out on your own.

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Need expert advice on building and managing your business credit, securing financing, and extending credit to your customers? Visit the new AllBusiness.com Business Credit Center today!