The Entrepreneur’s Banking Crisis
Banking has always been tough before for Entrepreneurs, but in this economy you need to be alert and take extra precautions. Here are some new rules to follow to help your business keep flowing.
1. Get more credit cards. Yes, I know some people are advising against this because it could have an adverse affect on your credit score. I can argue about how that theory is wrong, but your credit score isn’t the important point today, credit is. The problem is that banks are raising rates on credit cards on any excuse they can find. Additionally, they are also freezing cap amounts and no longer extending credit. As you pay down the credit card, your cap automatically lowers. This gives you no more credit and makes that card worthless to you. You need to get more credit cards when you can so you have options if problems with your others occur. New cards often have low teaser interest rates for 6 to 12 months. We all know this can work against you when you hit the time deadline but in the meantime you can transfer balances on cards you are having rate spikes with today. Deal with today’s problems and then work on cures for the future.
2. Watch your merchant accounts carefully. Banks have the right at any time to pull out money for a reserve if they feel they need to. If you are counting on that money for operations, and all of a sudden it gets frozen, you can be in big trouble. The best recourse against this is to build a relationship with someone at the bank who works in merchant services, and the higher up you can go the better. The relationship isn’t a guarantee something won’t happen - because most of the banks are tied in with card processors and don’t do the work themselves. Nevertheless, you are better off with a bank advocate pleading your case then you are talking to the 800 number recording.
3. Establish more than one merchant account. Banks always want all your business but today you simply cannot afford to do that, or you may wind up with an account you can’t use - and it will take more than 30 days to get a new one. In the mean time, you can’t take new charges on your old merchant account so you lose lots of cash flow. Having a back up is an answer, and use both of the accounts for some of the processing each month so you always know they are working. Even then, alarms will go off when the account all of a sudden has more money running through it then the bank's computers think is normal - but at least you should be able to explain that you are now using them for all of your processing, so that’s the reason for the spike.
4. Consider lining up one or more investors who are prepared to step in should you have a crisis. If your merchant account does get a reserve requirement slapped against it, you will eventually get the money so you could use that reserve for a private loan. I am not saying this is easy, but thinking about this and other resources before a problem occurs, gives you more time to act - because you know what you need to do and who you might call to help.