Q: I'm in a Catch-22: I opened my own pottery studio in 2008, just before the economy took a nosedive. It's holding its own, but I'm unable to pay myself—and, therefore, my mortgage. This studio is my dream, and it has brought so much to our community, but I need to refinance my Small Business Administration loan at a lower interest rate (to lower my payments) so I can have some personal income. The problem is that the missed home mortgage payments have hurt my credit, so now I'm unable to refinance. How do I get back on track?
A: Your assessment of the situation has a serious crack in it. If your business can't generate enough income to cover your basic living costs, then it's not holding its own. You're right about one thing, though: There's no way you can qualify for a refinance right now. Not only has your credit score been damaged but any loan officer would hesitate to offer new terms to a business that's still struggling two years after launch. In this economy, even small businesses on solid financial footing are finding it nearly impossible to get a loan.
I'm not going to tell you to close your doors this instant; before we get to that, let's make sure you exhaust every income-generating possibility. Consider reducing your hours at the studio and taking on another job—that option may not be ideal, but it might keep your dream afloat and allow you to pay your bills. I also want to ask you if you're charging enough. You say the community has responded positively to your venture; now trade on that goodwill by letting your customers know that to stay open you need to raise prices. Last, I want you to approach your business with the same creativity you bring to making pottery. Is there a way to add classes or to bring in other artists who are looking for retail space? Not just potters—how about photographers or painters who could display their work on your studio's unused wall space?
I love that you've followed your dream, but if you don't begin generating additional income soon, you'll need to close your business. Remember, you can relaunch in the future—but make sure you have at least one year of living expenses set aside (in addition to your usual emergency cash cushion) to keep your head above water while your business gains traction.