Liquidity and solvency are critical for all businesses, but especially for SMBs. As a result, before taking the step of seeking funding, it is critical to understand what mistakes to avoid when seeking funding and how to get the most out of these funds.
The most common mistakes made when seeking alternative financing in Mexico
Not knowing the interest rate
More than 60% of the businesses polled in the National Business Financing Survey (ENAFIN 2021) stated that high interest rates were the main factor limiting their access to credit.
Improving liquidity and solvency should be a primary goal when seeking financing, but not all loans will contribute equally to achieving this goal. Before accepting the first offer, one should consider and compare various options, as well as have a good understanding of the type of tax (whether fixed or variable) and the terms offered by the financial institution.
Fundamentally, fixed rates remain constant throughout the duration of the credit contract, whereas variable rates fluctuate according to market conditions and factors such as inflation.
Not being formalized
Only companies registered with the SAT have access to financing options in Mexico. Furthermore, forming a company has numerous advantages, such as the ability to participate in various types of contracts and solicitations.
Nonetheless, many entrepreneurs are hesitant to do so due to a lack of clarity regarding the taxable obligations that must be acquired. The reality is that failing to do so will result in additional complications, so it is critical that those seeking funding for entrepreneurs prioritize this task.
Lack of a well-defined plan
Beyond having a written plan that explains in detail the goals, plans, and other aspects of the business or project, which are critical in obtaining funding for entrepreneurs, it is necessary to consider how the resources will be used most effectively.
Some institutions only provide funding for specific purposes, whereas others want to know the company’s plans in order to estimate credit risk. According to the ENAFIN 2021, survey, more than 40% of SMBs in Mexico are devoted to debt repayment.
Failure to select the appropriate type of financing
It is estimated that approximately 12% of businesses pay their operating expenses with credit cards issued by their owners. This is an example of a common error: using personal credit cards to cover expenses that should be paid with company funds.
Furthermore, it is common for business owners to end their operations by requesting personal loans rather than commercial loans. The reason for this is that personal credit tends to have higher interest rates, lower loan amounts, and shorter payment terms, potentially affecting both owners’ and businesses’ finances.
Pymes Capital: pioneering new financing options in Mexico.
There is no doubt about how important it is for SMBs to have enough capital to continue growing. Nonetheless, it is common to encounter roadblocks, such as excessive bank requirements. Thinking about this, Pymes Capital emerges as a flexible financing option that allows businesses to pay based on sales.
This model works by paying a percentage of sales through the Merchant Cash Advance model, which provides personalization and adaptability to each company’s unique needs. Furthermore, the application is completely free and online.
We invite you to learn more about Pymes Capital and to apply for the funds you require to continue expanding your business.