For a growing SME, maintaining adequate control of debts reduces the risk of default with creditors, suppliers, and customers, ensuring that the business operates efficiently. While some business owners are proud because they never had to borrow, this approach is not always realistic.
Keywords: Tips, borrowing, money, risk of default, suppliers, customers
In order to achieve growth and make the leap into the international market, SMEs (small and medium-sized enterprises) need capital contributions. To obtain this support they can resort, for example, to bank loans, lines of credit or supplier financing. But many SME owners should ask when debt can be considered excessive.
When it is appropriate to borrow money
One possible answer is a careful analysis of the cash flow and the particular needs of each business. The following are some cases of when it is appropriate to get into debt, what type of debt is useful to get into, and what are the good practices for managing it.
Selling in the international market
When companies enter new markets it is common that they have to face longer cycles of charges for the products or services they place. This may be the result of offering more favorable terms to their customers to achieve adequate market penetration. Borrowing money can help overcome this period of financial mismatch.
Increase working capital
It is done when an SME needs to increase the number of employees or the rate of production of goods as a result of expanding its business into new markets. Or simply to increase capacity to meet a growing demand for its product or service.
Buying capital inputs
A company may need to finance the purchase of new equipment to enter new markets or to increase production. This type of investment is usually made with a long-term horizon.
Build a credit history
If a firm has not borrowed before, borrowing for the first time can help it develop a good repayment history, which will make it easier to borrow in the future. A good repayment history will allow the investor to obtain more financing options and better terms.
Improve cash flow
This may be the case for an entrepreneur who has less than ten years left to repay a long-term loan. Refinancing is a way to pay off existing debt or make prepayments on existing debt. It consists of paying off old debt with new debt and helps improve cash flow.
If a person wants to buy a house, a car, or you have to face a big expense and does not have all the money, the best option to have is to ask for a loan. If what a user wants cushion of money to be able to dispose of in case of a hurry, the most recommendable thing is a credit.
Taking out a loan or credit is the order of the day. It is rare that a person has not had to go to a third party for money to meet an unexpected expense.
Unless the users are careful and save part of the salary every month for possible expenses, it would not be strange if they had to resort to external financing to pay for unexpected expenses or large purchases.
- People can go mainly to the following entities:
- Banks. Both Spanish and foreign banks represented in Spain offer a wide range of personal loans.
- Savings banks. Savings and loan cooperatives.
- Private lenders (private capital companies). The products that characterize this source of financing are fast credits or loans, mini-credits or mini-loans, and online credits.
- Department stores, supermarkets and shops. These establishments do not offer a sum of money as such, but finance the purchase of certain products. The great advantage they have is that the interest rate is usually 0% during the first months.
- Credit card companies supported by financial institutions. Also, platforms that manage loans between individuals.