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

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

And while companies have dealt with inflation concerns in different ways, the Q2 2022 index reported that 46% of business owners surveyed had taken out a loan to cover rising costs, compared with 39% in the first quarter.

If you’re considering a business loan to keep up with inflation, use these three tips to help you through the process.

1. Understand your finances

Getting a small business loan may seem like a logical way to combat the challenges of inflation, such as increased costs and cash flow gaps.

Before you start looking for financing, however, you should ask yourself: Can my business afford to take on debt? How might the potential loan benefit my operations—now and six months from now?

If you’re considering a business loan, you need to know exactly how much money comes in and out of your business each month, your main operating expenses, seasonal revenue trends and any other factors affecting your cash flow, Zoe Newman, US managing director of Capital on Tap, a provider of business credit cards, said in an email.

Understanding your finances can help you project the potential impact of borrowings and repayments on your business, Newman said.

This evaluation can also allow you to determine whether debt refinancing is a viable option. “Given the rising interest rate environment, this is an excellent time for small business owners to refinance any variable rate debt they have into a fixed rate,” said Mike Roseman, CEO and co-founder of BoeFly, per email. BoeFly is a fintech company that specializes in franchise financing.

If you can refinance a variable rate loan into a fixed rate loan, you will protect your business from any interest rate changes in the future.

look: Four ways small businesses can prepare for a recession

2. Find the right lender

As the Federal Reserve raises interest rates in 2022, banks are tightening their business lending requirements. To access financing, small business owners may need to compare lenders to find the right option.

Start your search with a financial institution you have a relationship with. “The more business you’ve 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 financial planning a small business company, it says in an email.

Brownell also recommends looking beyond the big financial institutions and looking at regional or local banks, credit unions or other lenders that cater specifically to business customers.

Interest costs may not vary greatly, but a lender that gets to know your small business and can help you solve problems — rather than just sell you products — is a worthwhile long-term partner, he said.

Likewise, you can research 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.

Connected: Inflation hits small businesses in these cities and states the hardest

3. Review your operations and plan for the future

Small business owners can use additional financial strategies to combat inflation – whether they decide to get a loan or not.

You can review the way your business operates and determine if there are opportunities to increase efficiency and reduce costs. You can think about where your company is most successful – and consider whether there are ways to build on your success or even create something new.

Every economic hardship comes with an opportunity for innovation, Newman said.

“While most businesses attack the problem by simply trying to stay afloat on a shoestring budget, those that are able to change quickly to identify and address the new customer needs that arise from the changing climate have a real an opportunity for growth,” she said.

Additionally, it may be beneficial for business owners to work with a CPA or other financial expert to update their records and discuss financial plans for the future.

look: Small business owners worry about a recession, but many are confident they will survive it. that’s why

If you’re applying for a business loan, these experts can help you get organized and prepare a solid application. And even if you’re not looking for funding, they can offer advice on the best financial strategies to save costs and increase your bottom line – putting your business in a better position to combat any other economic challenges that may arise.

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Randa Criss writes for NerdWallet. Email: [email protected]

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