Financial Resource

The value of having a Plan B should be familiar to most small business owners. However it seems that the concept of contingency planning is overlooked all too often with regard to commercial loans and working capital strategies.

One of the most entertaining and effective depictions of contingency planning can be witnessed in a movie called “Rare Birds”. This movie stars William Hurt and includes a particularly relevant line, “Always have a Plan B”, that is repeated several times. The movie should be seen by any business owner who doubts the importance of contingency plans.

The usefulness of a Plan B mentality is likely to be beneficial to many aspects of running a successful business. For various reasons, however, contingency planning appears to be under-utilized when business owners are seeking new working capital via business financing strategies such as commercial mortgages and business cash advances.

Contingency planning might be under-utilized when business owners are seeking commercial financing simply because business borrowers assume that there are not effective alternatives to the working capital financing they are seeking. As a result, many business owners might believe that it would not make sense to explore a contingency financing plan. A practical benefit of viewing the recommended movie is that it will become second nature to realize at times like this that businesses should “Always have a Plan B”.

Plan B contingency business financing can be viewed as insurance to protect a business owner in the event that something goes wrong with their working capital management. A few examples are provided below.

First, many small businesses have commercial loans that contain recall provisions that permit the lender to review the financing each year. With such terms, the lender can continue a business financing role for some borrowers and selectively eliminate what they consider to be marginal loans by exercising the recall clause. If they do, the borrower will need to pay off the entire loan or refinance within a limited period of time. The best solution for avoiding this possibility is to review current business loans and explore Plan B refinancing options if recall terms are included.

Second, a number of local banks throughout the United States have recently decided to pull the plug on future business financing. When they do so, very little advance notice has been provided in most instances. If a business has commercial loans or commercial mortgages with a regional or local lender, a Plan B should be developed for the contingency that alternative business loan arrangements could be needed in the near future.

Third, many providers for business cash advances are notorious for making unrealistic promises regarding the timing and terms for their financing. To prepare for this increasingly-common possibility, business owners should engage in thorough discussions with a working capital advance advisor before proceeding. Unlike the first two examples, in this case the Plan B approach must occur before financial arrangements are completed.

Fourth, many lenders for SBA financing, commercial mortgages and business opportunity loans are equally guilty of over-promising and under-delivering. This seems to occur disproportionately with local banks. Similar to the recommended business cash advance approach, commercial borrowers should pursue Plan B contingency financing. The ideal timing for discussing alternative commercial financing options is before committing to a specific lender.

”Always have a Plan B” is the connecting theme for the examples described above as well as other circumstances in which contingency planning is appropriate for business financing. The presence of a Plan B mentality is likely to contribute to many aspects of running a successful small business in addition to improving commercial loans.

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