Should your small business get a loan to cover rising costs of inflation? This can help you decide.

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Before taking on new financing, companies should make sure a loan is right for their needs. Here's some guidance.

Small-business owners have spent years trying to combat the effects of the COVID-19 pandemic, and now inflation has thrown a wrench into the progress of recovery. Four out of five businesses report that rising prices have had a significant impact on their operation, according to the U.S. Chamber of Commerce’s Q2 2022 Small Business Index.

1. Understand your finances Getting a small-business loan may seem like a logical way to combat inflation challenges, such as increased expenses and cash-flow gaps. Understanding your finances can help you project the potential impact of loan funds and repayments on your business, Newman said. Start your search with a financial institution where you have a relationship. “The more business you have done with the financial institution, the more likely they are to know your company and be willing to work with you to find the best solution,” Sam Brownell, founder of Stratus Wealth Advisors, a small-business financial planning company, said in an email.

Similarly, you might explore community development financial institutions, or CDFIs. These organizations typically focus on lending to traditionally underserved businesses and those in low-income communities. CDFIs often offer business-development services — and their loans may be easier to qualify for.3. Reexamine your operations and plan for the future Small-business owners can employ additional financial strategies to fight against inflation — whether or not they decide to get a loan.

 

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