Importance of business financing in economic crises

In Mexico, the importance of financing for businesses can be seen during times of economic crises that have significantly impacted the economy, for example, the 2008 financial crisis that caused many businesses to go bankrupt or in the COVID-19 pandemic. , where there was a significant decrease in sales, profitability in organizations and a drop of 8.0% in the Mexican economy.

What is the importance of business financing during economic crises?

During periods of uncertainty and economic problems, business financing becomes a critical resource that can make the difference between a business’s survival and failure.

1. Maintains business liquidity

Turning to a company’s external financing sources is key to maintaining liquidity in times of crisis, where cash is needed to pay bills and maintain the operation of the business.

In this case, financing, whether through business lines of credit, loans, cash advances, among other types, can provide the liquidity necessary to get through those difficult times.

2. Facilitates adaptation to change

Economic crises often require companies to quickly adapt to a changing environment. This may involve restructuring operations, diversifying products and services, or investing in technologies.

Thus, accessing financing allows companies to make the required modifications and transitions without depending exclusively on their cash flows.

3. Protect jobs

Companies are a fundamental engine for job creation in any economy. However, during a crisis, many companies are forced to reduce their workforce to survive.

By having financing sources external to the company, jobs can be maintained by obtaining the necessary resources to cover labor costs, even when income decreases due to the crisis.

4. Strategic opportunities can be taken advantage of

While economic crises come with challenges, they can also present opportunities for growth. The acquisition of distressed assets, expansion into new markets or investment in research and development are examples of strategies that may be viable during a crisis, especially considering that opportunities may arise due to the crisis, such as offers on the acquisition of inputs or discounts. of the suppliers.

5. Helps maintain confidence during financial problems

Obtaining financing during an economic crisis can send positive signals to investors and business partners, since showing that a company has access to financial resources increases the market’s confidence in its ability to overcome the crisis, which also helps maintain business relationships and attract investors to support the business.

This is explained because financial institutions carry out an adequate evaluation to decide whether to approve business credit or not, in such a way that having financing demonstrates that the business is capable of paying it and that it is working on its recovery or growth in the face of the economic situation.