How to Handle a Cash-Flow Crisis Without Taking Out a High-Interest Loan

It is inevitable that your company will hit a financial speed bump at some point, but how you handle the crisis is critical to your survival.

Hopefully it will never happen to you, but many entrepreneurs face a day when things hit the fan.

Things may be going along swimmingly, but sometimes there are warning signs that are ignored, and things are out of your control, and you find yourself in a financial crisis.

The usual reaction by entrepreneurs is to want to fix the problem as quickly as possible. That often means securing a loan--and many people will turn to an online business loan to deal with the cash crunch.

At one level, it makes sense. The loans are easy to apply for, approvals happen quickly, and you can then throw the cash at the problem and proceed apace.

But online business loans really should be a last resort, given their sky-high interest rates and the usual rapid amortization periods. Paying back the loans typically becomes onerous, especially if the problem that caused the cash crunch isn't corrected.

Here's what you should do instead.

1. Swallow your pride.

Rather than get stuck in a debt spiral, a better option is to gut out the problem. It may well be a blow to your ego, but groveling a bit can be beneficial here.

For one thing, you can stretch out your payments. You don't want to ruin your credit, but paying your debts more slowly is one possibility.

In the same vein, you can ask lenders for relief. If you've been a good client in the past, they might be willing to give you a break. In any case, it can't hurt to ask.

You also should cut expenses and overhead wherever possible. Unless something is vital, you don't need it. For some things, a less expensive option might suffice for a while. You might consider having some independent contractors do your marketing work instead of an agency, for example.

You can even ask your employees if you can stretch out their salary payments. You need to tread carefully here because unpaid employees aren't going to remain employees for long, but even a few days might give you some leeway, especially if you have a strong, trusted team.

2. Do without.

Too often, entrepreneurs--especially ones with fledging companies--get stuck thinking that the only way to conduct business is to move ahead and not look back (or scale back).

That's a recipe for trouble, because when your business is in its early stages, you need to do everything you can to survive. If that means circling the wagons, so be it. You need to think about what is absolutely essential to get you to the next level, and what can wait.  That might mean slowing down some hires, or buying one machine now instead of two.Yes, it can be embarrassing, but bankruptcy is even more so. 

You won't be the first entrepreneur to find yourself in this position, and you won't be the last. Dealing with a bit of adversity might not be pleasant, but the old saw about building character rings true. Everyone deals with failure at some point.

And finally, remember that if hunkering down doesn't work, you always have the option, if you're so inclined, to try an online business loan as a Hail Mary. However if you do so, explore several options and absolutely pick the plan with the lowest monthly (or daily) payments to get you through your tough spot.