The Importance of Financing Sources for SMEs
The importance of sources of financing for SMEs has increased in recent times, also for larger companies with greater market penetration. In an environment of commercial limitations and confinement to curb the wave of COVID-19 contacts. Resorting to help and external capital to recover liquidity, resume growth plans and even pay for accumulated debts has become an essential issue for businesses from different sectors.
Advantages of Financing Sources for SMEs
To concretely reflect the relevance of financing for new or current companies of medium or moderate size, we leave you a list of its advantages:
Greater Possibility of Saving
Requesting a loan for companies specifically to save is not viable from a financial point of view because instead of generating capital gains, you will be losing money in the medium or long term due to interest.
However, suppose you use the money received to finance your company and its growth plans. In that case, you will be using external capital for this type of project. Consequently, it will be much more feasible to allocate a significant percentage of your recurring income to savings.
Meanwhile, the interest and financing payment fees will be another added expense of your business. That you can assume fractionally and stably if you maintain the expected commercial flow.
Growing with your capital is a great challenge: systematically reinvesting monthly profits to achieve expansion is a model that sooner or later can stall; for example, if your turnover stalls or declines due to internal or external factors.
On the other hand, having a line of credit or a reliable source of financing through a reliable. And professional institution or entity can provide you with that constant flow of capital necessary to complete the growth project and advance in its different stages in an orderly manner.
Construction of Credit History
Solid credit history is a point in favour for any company, regardless of the market in which it operates. Thus, the financing doors will open, and you will find external support when you need it most, even amid crises and stressful situations. low liquidity.
On the other hand, having an impeccable payment history can lead you towards higher level financing options that allow your business to get involved in projects and market actions to stop being an SME and become a large company .
Strengthening of the Productive Cycle
It is because, as we mentioned before, you should not allocate your income to growth projects. Instead, you can spend almost all of it on working capital and immediate impact strategies. That add value to the business and its production cycle, which will reflect a better customer experience.
In conclusion, this and other points reflect that the importance of financing sources is associated. With the fact that they allow us to meet significant objectives including ambitious expansion plans without sacrificing the liquidity and quality of our current operations
Critical Tips for Managing and Assuming Financing
The importance of financing sources for SMEs is beyond doubt. Of course, it is also true that it can be a double-edged sword if we have poor management and fail in making decisions.
To manage and assume financing with coherence and security, you must:
Analyze the Financial Status of the Company From A to Z.
Reviewing accounting books, updating the cash flow statement. Analyzing sales reports and other evaluation tasks are essential when preparing your company to take on financing.
Thus, you will be able to measure your payment capacity. The level of debt you can pay and other essential aspects.
Calculate the Final Price of the Financing
The final price of the financing is not only the total return of the amount of money borrowed. Interest, administrative costs, payments of fees to advisors and other expenses must also be taken into account.
The project calculates and adds all these values to determine, with certainty, how much the financing will cost you to define if it really suits you.
Develop And Study A Specific Payment Plan
Once you are clear about a potential financing agreement and its demands. Structure a specific payment plan that you can take advantage of in the future.
Of course, this plan must be realistic, coherent and very well defined. Its result will be a master guide for the order of your finances and the timely fulfillment of payment responsibilities.
Diversify the Capital Received
Investors often say that it is not a good idea to put all your eggs in one basket. And it is a logical idea since companies must have a wide margin of maneuver to protect themselves.
Suppose you allocate all the money received as a loan to a particular product. A specific area of innovation and a unique project. In that case, you could have significant losses and problems if, in the end, you do not obtain the expected results.
Instead, diversifying the capital received is a way to protect yourself and explore different areas of potential profitability that will ultimately have different levels of return.
Record the Financing Payment as an Expense
Each financing payment instalment must be reflect in your records as part of the expenses of a certain period. To measure the true impact of the credit on your business and the ability you are having to pay for it.
In addition to putting these tips into practice, do not hesitate to turn to economists and other experts to receive specialized advice when studying and accessing financing options.
Remember, today, more than ever, the importance of financing sources for SMEs is a reality. However, we cannot manage them in an improvised and irrational way that could put long-term liquidity and stability at risk.
Every organization needs to sustain its operations. Day-to-day processes are usually leveraged with positive cash flow, but there are times when more resources are required. That is why it is essential to establish financing strategies specially designed considering the requirements of your business.
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