How is the financial health of your business? With the final stretch of the pandemic, do you think you’re recovering? Would this be the time to get a loan for Micro and Small Businesses?
Know that, many times, the credit application is that little push that your company needs to turn around in this very difficult phase of the economy.
So, if you are a micro or small entrepreneur and don’t know if this is the right time to apply for a loan-to-value ratio, let us help you find out. Follow!
Micro and Small Business Loan: How to know when it is necessary?
There are some situations in which the loan can be a good solution to solve the company’s problems.
pay off debts
First, if she has debts. After all, if we are still starting to recover the economy, it is unlikely that your company will be able to earn enough to pay off debts that are already overdue.
In addition, if with a loan you take the full amount to pay your bills, it is very likely that you will get a good deal, with less fees and interest. Or, manage to remove all charges and pay only what you really owe.
Therefore, the loan can be a good and quick solution.
Working capital
Another reason to apply for a loan is if you urgently need working capital . After all, having money on hand can greatly improve your negotiations when purchasing raw materials for your product or negotiating that outsourced service.
Thus, this is also a good reason why Micro and Small Businesses take out a loan.
Need for expansion
A third and important reason is when your company has a real need to expand but you don’t have the capital to do so. A work or renovation in your establishment to increase capacity, or even the purchase of equipment, are some examples.
However, carefully assess whether this investment is really necessary, that is, if you already have this increased demand. Otherwise, the loan may be a bad deal.
Good debt capacity
It may seem like a strange term, but the debt capacity, in this case, is when a company knows that it will be able to afford the loan installments.
That is, if you have already done a deep analysis on how much you earn, how much you spend, how much money you need and all future forecasts, you have the ability to decide whether or not you are able to afford a loan.
Common types of loan for Micro and Small Businesses
Those who fall into these business categories have a few options when it comes to borrowing:
Overdraft
Despite having one of the highest interest rates on the market, the overdraft is still widely used by companies as well as individuals.
It is not the type of credit that is normally planned, and ends up being part of the financial routine due to lack of budget control.
But if this is a measure that you find comfortable for your company, you can try to negotiate with the financial institution where you have the account to try to reduce the fees and charges that fall on this type of loan.
Guaranteed account
The guaranteed account is like a revolving credit, that is, the financial institution maintains an amount in the account previously agreed in the contract, precisely for when the company needs cash flow.
Companies often use the anticipation of receivables, thus withdrawing money that they would already receive in a later period, plus charges.
This type of credit needs bills as collateral and, as a result, ends up having lower interest rates.
secured loan
As with the secured loan for individuals, those who have a Micro or Small Business can also apply for this type of credit.
To do this, just offer the same assets such as: property or vehicle as collateral when applying for the loan.
Likewise, it is a type of loan that has lower interest rates, due to the lower risk of default due to the guarantee.
microcredit
This line of credit was designed precisely for small businesses, both for those who already have one and for those who want to open one.
Microcredit usually has lower interest rates and longer terms, considering the financial reality of those who take the credit.
How to borrow for Micro and Small Businesses?
First of all, you need to gather all the necessary documentation to apply for the loan. The following documents are usually requested:
- Social contract;
- Balance sheet;
- Corporate Income Tax Return;
- Income Statement for the Year.
With this documentation in hand, research which line of credit best suits your company’s needs and apply for your loan.
You can favor loans that have a grace period to start paying the installments, as well as those that have lower interest rates or a greater number of installments.
And don’t forget to always evaluate the Total Effective Cost of the loan before making your decision.
