Financing and Working Capital

Using credit to weather disruption

Five ways to financially prepare your business for a disaster.

Published: October 21, 2019

Whether it’s a natural disaster, a delay in the supply chain, or a major IT systems failure, disruption can affect any business. To prepare for the unexpected, it’s critical that businesses have a plan in place to weather any interruption.

Having access to credit can be a major asset when emergency strikes. Steve Milani, vice president, business cards and lines manager at Wells Fargo, offers advice for business owners on how they may leverage different credit tools to keep their core operations up and running in the wake of disruption.

1. Apply for a line of credit before you need it

Milani suggests applying for a line of credit before a disruption occurs. “When bad times hit, it can be much more difficult to obtain credit,” Milani says. “Obtaining a line of credit and holding onto it is a great way to prepare your business for any future disruptions,” he says. “A line of credit can hopefully cover several months of business cash flow needs if your business is interrupted for a significant period of time.”

2. Set aside an emergency credit card

Designate a credit card to set aside for emergencies, preferably one with a generous credit limit, Milani recommends.

He suggests looking for a business credit card you can pay back in several weeks’ time. Also, utilize lower interest credit tools, such as lines of credit for businesses that need access to financing for longer periods of time.

Credit cards may be helpful for post disaster record keeping, too. “You’ll have itemized purchases conveniently listed that you can reference if you need to make any insurance claims,” Milani says.

3. Take advantage of available lending options

The SBA offers two types of low-interest loans for businesses that have been affected by disaster:

  • Physical disaster loans, which may be used to help replace or restore damaged property.
  • Economic disaster loans, which may be used to help your business survive until normal operations resume.

After a disaster, applying for these loans as soon as possible may help you beat the backlog of businesses that will also apply. To qualify, your business must be in an affected area as stated by a disaster declaration.

Further, some private financial institutions offer financing or waive payments for businesses affected by disruption. “Wells Fargo will help out business owners after natural disasters by freezing payments due and suspending late fees on credit accounts,” Milani says.

Discover credit strategies for later-stage businesses:

Learn approaches to business credit for established businesses.

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4. Keep your business and personal credit in good shape

Even with exhaustive preparation, businesses may still need access to additional financing in the wake of a disaster. Having good credit — both business and personal — may improve a business owner’s ability to receive financing.

“Good credit may allow you to obtain credit even when most others are being declined,” says Milani. “In addition, it may help you receive more favorable interest rates.”

5. Start building an emergency fund

Credit isn’t a cure-all. One of the most important ways a business may prepare for disruption is by building up an emergency fund. “You’ll want a minimum of three months of business expenses covered, and six months will provide even more peace of mind,” Milani says.

Preparation is the key to weathering business disruption. Learning how to leverage credit tools in times of emergency is a great start.

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