The financial decisions of the management group have a direct impact on the performance of a small business.
It is critical that the management level of the organization is aware of the many financing options available in the market so that they can create and implement effective financing mechanisms.
That meet the company’s resource requirements and allow the company to consolidate in the market.
Strategies are divided into three types:
is for SMEs that are just starting out;
is for SMEs that are already established and want to expand operations or develop new projects, which are known as continuous operations strategies;
and last section of this section consists of financial support strategies, which show the entrepreneur how to take advantage of the different organizations that support and promote SMEs. The commercial, industrial, service and agricultural sectors have established strategies.
In order to present clear and simple examples that allow the reader to understand the proposed methods.
Assumptions were made to formulate financing strategies, which are:
- It is based on the fact that the repayment of the principal is minimal in the first years, which generates only interest payments on the original loan amount.
- Interest rates are variable and may change every three months; however, for the sake of examples, the same interest rates are used throughout the year.
- Formalization costs and fees average 10% and are paid only once at the time of credit distribution.
- Generally, when a client moves his debt from one financial institution to another, there are promotions in which only commission is paid and not formalization commission. For the strategies that are planned, no formalization fees will be charged at the time of debt transfer; instead, you will only have to pay a 3.5 percent commission disbursed once.
- It is believed that the client, when requesting a credit amount, includes the amount necessary for the formalization fees as part of the requested amount.
For SMEs, there are three simple credit options.
Pre-approved credit is a way for SMEs to receive fast financing. In general, access requires a strong connection to the bank, a good amount of income, and a history of being a good payer.
The credit is accessible in a current account with a predetermined limit, which can be paid in installments and with a predetermined interest rate for those who adapt to this circumstance. In most cases, credit is obtained solely on the basis of the customer’s consent and can be accessed via the Internet, ATM or telephone.
It’s a wonderful alternative for people who need lines of credit for little money.
Withdraw with credit card
A credit card, which is offered through a variety of carriers and is generally available to all customers who have a card, is a comparable option for SMBs to receive quick credit and get money right away. The withdrawal limit is usually linked to the client’s profile.
The benefit is that interest rates are often lower than those offered by other financial options accessible to bank customers, such as special checks and revolving credit. On the other hand, there is the benefit of establishing financing terms that are not subject to change, such as revolving credit.
However, compared to other types of credit, withdrawals made with a credit card have a higher interest rate.
Seizure of goods
Another alternative for SMEs seeking cheap financing is asset seizure, in which the credit granted depends on the exchange of a valuable item for the same amount of money borrowed. The asset must be evaluated by the banking institution or pawn shop.
The client benefits greatly from the lack of bureaucracy and the elimination of the need to verify income. On the other hand, the value assigned to your item will never be what it is worth and you will lose ownership if the debt is not paid.
This is a good alternative for people who have high-value items and need to repay a short-term loan.
Beware of easy credit for SMEs
In addition, a variety of entities, such as financial corporations, retail companies.
And even individual lenders, known as loan sharks, provide credit without the use of bureaucracy.
In general, people who have a stable income, even if they are in debt or unable to get bank credit, will find this to be a more accessible option.
The main problem is that lenders and loan sharks often demand exorbitant interest rates. As a result, it’s critical to carefully weigh your options and confirm that you’ll be able to cover the costs.