If you are thinking about applying for a loan, it is extremely important that you know what you are committing to, the requirements and the responsibilities that you are going to acquire. If you want to request it because you want more money or because you want to pay debts.
8 min read
Business credit is an ace up your sleeve that entrepreneurs and business owners can use to drive the growth of their project. However, applying for this type of credit is not an issue that should be taken as lightly as if it were the same as buying a new shirt or even a car.
If you are thinking about applying for a loan, it is extremely important that you know what you are committing to, the requirements and the responsibilities that you are going to acquire. If you want to request it because you want more money or because you want to pay debts, you should definitely read this article.
Only 15% of the owners of small and medium-sized companies (SMEs) have a loan to boost their projects , according to a study carried out by the Konfío platform.
And it is not because the remaining percentage has not requested it, but because it does not have the requirements that financial institutions normally ask to grant them.
The first step you should understand about business loans is that they should be used to incentivize expansion, sales growth, or cost simplification. If you understand how to use it, you can take your business to the top.
Before applying for a credit, you can ask yourself the following questions:
Do I really need a credit? Although this question may seem obvious, it is important that you realize if you really need it. This is when you can kick-start your creativity and inventiveness to leverage other resources before thinking about credit.
Do I have financial stability? That's right, you must make sure if you can pay the loan with everything and interest month after month. If you appear before a financial institution and have no economic stability, it is most likely that they will deny it to you.
“People who don't know what to do with their money spend it; people who know what to do with it invest it and generate wealth. ”
Alejandro Saracho, CEO of Financial Reconfiguration
Am I going to use my credit to pay debts or to generate more money? There is something I call the Destructive Cycle of Wealth, which is when you fall into the whirlpool of using debt to pay your expenses.
If you are going to use the credit to acquire things that are going to be devalued or to pay debts that will not generate more money in the long run, you will have a destructive debt.
Is my business already formalized? If not, rest assured that your credit will be denied. To formalize you must carry out all the corresponding procedures that guarantee the legitimacy of your business.
Do I know the financial status of my business? If you know what I'm talking about, great! And if you don't know what a financial statement is, you're going astray as a business owner. The fact is serious: eight out of 10 business owners do not know the financial statement or know where the money goes, mainly because they mix business expenses with personal expenses, and this is one of the worst mistakes you can make!
Some types of financing
Before you go for the first financing option that is presented or recommended, take a look at the different alternatives on the market and analyze the pros and cons:
Bank financing. This is one of the most common credits and is very often taken as the first option. It is the type of credit granted by banking institutions.
Government funds. These financings are granted by the government to encourage the growth of SMEs. Within this item there are different options, depending on the size of your business.
Angel investors. This option is about investor associations or “clubs” that are looking for where to invest their capital. They set the rules and get involved in running your business. This does not mean that they will be the decision makers or that the business is theirs, but rather that they will watch that everything runs smoothly. This is not a loan as is; It is an option that seeks to promote growth and generate capital for investors.
Venture capital. It is also known as venture capital. It is a financing that investors give to startups that they consider have long-term growth potential.
The fintech option. Today a model that became very popular for borrowing is fintech. If you are not familiar with this term, I will tell you briefly: Until a few years ago, credits were normally requested through banks, which involved a lot of bureaucratic process and long lines. In recent years, thanks to technological advances, the financial sector has managed to make a great leap in terms of processes, which have become more efficient and optimized. This is how the fintech industry was born, in which companies use technology to provide better financial services in a more agile and comfortable way for users. Fintech entities in Mexico are already regulated and it is something that is gaining popularity both in the country and in the rest of Latin America.
If you have doubts about which entities are regulated, you can directly enter fintechmexico .org so that you can verify who your affiliates are and everything regarding their legal framework.
The little letters
However, I consider that the most important question when thinking about applying for a loan with both traditional banks and fintech companies is: What should I take into account when acquiring a loan? What are the factors that I should keep in mind?
Many times we think that it is the “small letters” that we do not read that get us into debt problems, but this is some basic information about any credit that you should be clear about before making the decision.
First of all, check the commissions. For the simple fact of obtaining a credit (they are known as opening fees), both banks and fintech companies charge them.
There are some institutions that charge between 12% and 15% commission for opening, and you must take into account that this can make the debt bigger and that in the long term it can be difficult when paying.
The second point is that you must know the rates and annual commission; don't just focus on monthly rates.
It is also vital that you verify the legality and regulation of the financial institution with which you are interested in obtaining credit. And finally, it also takes into account the deadlines to settle your debt. You should seek that these terms do not compromise your cash flow and that they do not put the liquidity of the business at risk.
Before making the decision to ask for credit, review the article until you are clear on all points. If you have any questions, go to the institutions that can support you in the process.
You can list the pros and cons for your business when applying for credit. This way you will notice if it makes sense to get one.
Do not make commitments that you think you are not ready for.
Think before acting, with a cold head and not with emotions, because as I always say: “When emotion rises, intelligence falls.” And this can put the future of your business and yours at risk.