Ryan Reinert has noticed something lately. Over the last month and a half, he’s seen four or five times the number of lender referrals cross his desk at Tampa law firm Shutts & Bowen as he saw this summer.
Reinert, a partner specializing in business bankruptcy, said that tends to be a sign more businesses are struggling with their loans, and may be looking at some sort of financial restructuring in the coming year.
And it jibes with the notion that in 2023, we may be facing a recession.
“All the indicators that you generally see in the press and the market, I think, are correct, that there’s going to be a larger correction than what we’ve seen so far,” Reinert said.
“We are unique here in Florida, with a good economy for the most part, better than most economies throughout the United States, and probably in a unique position to shoulder the brunt of a downturn. But I still think we’re going to end up with those scenarios where lending doesn’t make as much sense as it used to. ... Some of the companies that ran and continue to run on cheap and free cash are going to be in trouble.”
If businesses are in trouble, so are the people who work there. While inflation and rising interest rates have pinched the economy in 2022, there are still steps you can think about taking now before things get worse in 2023, as many experts predict will be the case.
Here’s some advice from Tampa Bay advisors and business leaders.
Cut back on spending
Tightening your budget is the first and most obvious move anyone can make. That can mean anything from cutting streaming services to changing where you shop.
“If you’re buying your groceries at the GreenWise at Water Street, maybe switch to Walmart,” said Kevin Caldwell, founder of Tampa financial planning firm Golden Road Advisors. “If you have an $800-a-month Range Rover lease that you can’t afford, and you’re doing that because you want to show up at Meat Market and be a stud, you’re probably vulnerable.”
A good rule of thumb is to build up enough of a financial runway to be able to pay your bills for six months, said Janet Nichols, managing director and senior vice president of investments at NGK Family Wealth Advisors of Raymond James.
Prepare to lose your job
Obviously, not everyone will be laid off in 2023. But if you’re in a sector that’s experienced layoffs in 2022, and are concerned about the market in 2023, there are a few steps you might take now.
If you’re thinking about consolidating your debt or transferring higher-interest debt to another lender, such as a credit card with a low introductory APR, do that while you have a job and steady salary. That will make borrowing from a new lender much smoother, Nichols said.
If you don’t have an emergency fund stashed away, you might consider pausing your 401(k) contributions through work. That may fly in the face of traditional financial planning advice, Nichols said, but if you think you could be without a job for a while, having some liquidity in your savings will be important.
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“This is something that most young folks working right now really haven’t experienced, a tough jobs market like this,” she said.
Establish a line of credit now
Another thing homeowners can do while they have a job: Establish a line of home equity credit. You may not need it now, and you may not need it in the next year. Still, it’s easier to establish credit like that when your finances are steady, as opposed to when they’re not. You don’t want to be facing a sudden, unexpected expense with no way to pay for it.
“You don’t want to live off the equity in your house, but it’s better than nothing,” Caldwell said.
The same goes for business owners both small and large. Many companies are already establishing or increasing credit facilities in case the economic outlook changes next year, their business drops off or lenders start exercising more discretion about borrowers.
“You should be able to access capital without putting it on a credit card,” Caldwell said.
Building new lines of credit has the added benefit of opening and clarifying lines of communication with your lender. That will be important if you suddenly find yourself looking to extend loans or negotiate with creditors.
“You’re not going to get your best (loan) offer coming in off the street at this point,” Reinert said. “There’s going to be some scrutiny, some higher interest rates associated with it, probably some more covenants that would apply to most loans at this point — unless you already have a relationship. If you have a relationship with the institution, you’re probably going to get some grace.”
Build a network
For small business owners, having a safety net isn’t just about your finances. It’s about having a network of support and resources that can help minimize your hits and maximize even the most marginal gains.
“You’ve got to be connected,” said Brian Butler, CEO of Vistra Communications and chairperson of the Tampa Bay Chamber. “The worst thing you can do is become disconnected from other business leaders in the community.”
The chamber, like other business and professional groups, offers mentoring and leadership programs for everyone from college students to CEOs new to Tampa Bay.
“It’s that long-term strategy of, get involved, stay involved, and we’ll work through the good times and the bad times together,” chamber CEO Bob Rohrlack said.
Consult a financial advisor
When should anyone, regardless of their net worth, talk to a financial advisor?
“If you have enough going on that it scares you that you’re doing it wrong,” Caldwell said. “Anytime life starts to get more real — you’re getting married or you have a pending sale of your business or some big momentous occasion is coming on, and there’s enough at stake that if you do it wrong, it’s just going to be bad.”
For newbies, it can be intimidating, he said.
“Our industry has done a terrible job of making financial advice digestible, because the reality is, when you go to see a financial advisor, you’re bracing yourself to be sold something,” he said.
Just as it’s a good idea to be open and transparent with your lenders, it could pay off down the line to begin a conversation with a financial planner while times are still relatively good.
“If we continue to have conditions like this,” Caldwell said, “it’s just going to squeeze more and more people.”