Even small businesses need an emergency fund

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Even small businesses need an emergency fund

By Anna MaskerIn standard30th December, 2008

With the extreme downturn and credit crunch, many of my clients have found themselves needing additional cash to keep their operations going. Yet some of them found their credit lines reduced, credit cards cancelled, and new capital hard to find.

While hoarding cash is not the answer, having access to it, whether through a line of credit or building a cash reserve is critical for surviving the downturn. If you rely on your line of credit to fund payroll or pay for inventory, and you feel like you are at risk of the bank recalling or reducing the amount they have extended to you,  you should consider drawing the line of credit down and putting the money in an FDIC-insured account.

Proceed with caution: It will cost you more in interest, will increase your debt load and put your collateral at risk, kill your balance sheet ratios, and reduce the likelihood that you can get more credit. But if you need that money to continue operations, the cost of losing your business may be greater than the temporary blip on your credit score.

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