Anyone who wants to start a business in an industry should know that there are different rules for starting a business. Among them, it is important to know that debts are an element that will be present and that you must know how to understand and manage to expand the venture.
For a company, taking on debt is not necessarily bad. In fact, it is estimated that companies in Mexico have a total debt of $36 million. However, to know how to start a business that correctly manages your debts, it is important to know the details in depth.
Debts and rules for starting a business
Loans to start a business may not excite entrepreneurs too much, because they involve acquiring debt and depending on a financial institution. If the requirements imposed by it are high and the payment conditions are too harsh, this can become complicated over time.
However, going into debt to obtain financing for SMEs can be a crucial resource when it comes to boosting the growth of a business, as long as this debt is managed appropriately.
To know how to start a business that manages your debts well, you have to start by making a distinction:
Healthy debt and unhealthy debt
If an entrepreneur takes out loans to start a business, generally speaking, this debt will be healthy to the extent that the profitability of his business exceeds the debt. For this reason, the level of debt that a company is able to support will depend on its level of profitability.
In that sense, it can be very convenient to acquire debt focused on essential elements that help grow the business, innovate in products or services, acquire better equipment or machinery, invest in design, facilities or talent.
On the other hand, when debt is used to solve a lack of income and not to generate it, this can cause the level of debt to end up exceeding the profitability of the business, which is not sustainable in the long term.
To make a debt healthy, it is essential:
- Plan from the beginning how the resources will be used.
- Know in detail the payment capacity.’
- Diversify the business, so that it does not depend on a single product or service.
- Have an emergency fund to avoid becoming decapitalized.
- Cut unnecessary expenses and plan payments.
Advantages and disadvantages of debt
Debts involve different benefits and complexities for any company:
Advantages
- They deliver immediate capital.
- They allow you to finance the start and expansion of a business.
- If managed responsibly, they nourish your credit history.
Disadvantages
- The requirements can be complex.
- Commissions can be high, according to the financial institution.
- Payment terms can become burdensome.
- If you default, an entrepreneur may face high interest, judgments and embargoes.
In any case, it is important to highlight that prior financial planning and the responsibility with which financing for SMEs is handled will be crucial to making a debt more or less beneficial.
The importance of finding financing that suits you
If you have a young business, with a perspective of expansion, you can opt for MCA financing. This consists of a cash advance that you receive immediately, and that you pay with a percentage of the sales your business achieves.
It is a flexible and easy product to obtain, without a high fee. It allows you to avoid debt, since your payments are adapted to the growth of your company. Come to Pymes Capital and learn more about its different options, to find the ideal financing for your company.