Given the current state of high debts we are facing and less and less people paying their debts, it will hardly come as a surprise to know that many companies, large and small, are experiencing very real financial difficulties. Costs of consumers and businesses have grown a lot in recent months both within the national economy and on a global basis and many companies are suffering from extreme cash flow problems and debt management because they have assumed a very high risk that depended of Brazil’s growth.
For many business owners the current situation is such that they need to think about restructuring their debt to relieve the financial pressures of keeping them. This would allow many of them to make it easier to pay what they owe and to keep on the financial straight in the right way. This will also put them in a better position to pass through the problems with success first.
Understanding Debt Consolidation
One of the most obvious ways to screen a lot of debts is to consolidate your debts now! This type of loan will be withdrawn for the payment of all existing debts and giving the company a loan to deal with them. The goal is to reduce monthly payment commitments to free up more money and put the company in a more stable position.
Where to go for advice?
Before you decide whether this is a path you can and should take, you will need some advice from a well-qualified business expert. You can talk to your accountant to find out his / her opinion, your own personal finance whether you have some in your business, the business manager at your bank or an independent business advisory specialist.
Will you qualify for a debt consolidation loan?
Your ability to take a consolidation loan will depend on the viability of your business and your ability to repay the loan in the first place. A business that seems to have the ability to turn itself or is simply going through cash flow problems, even though it is doing well on paper will probably be seen as a viable option here. If your business is not doing well at all and it seems unlikely that you will be able to overturn the game to fulfill the loan commitments then you may also be turned down.
This is very much like a consumer looking to take out a personal loan. If you can show that this is a temporary situation and that you can afford what you ask, then you have a much greater chance of getting the help you need.
By consolidating your debt, you can better stabilize your business and save yourself from debt. Just be careful with the interest rates.
What options do you have?
Companies have several options when they need to increase funding to consolidate existing debts. Not all of these solutions will be open to all companies. As has been said, this will depend on your business and your current and future circumstances.
Generally speaking, there are two ways to get finance like a business: loans for debt repayments and financial equity loans. With a debt loan, you simply borrow money and then have to pay it off with no other commitments to make. With an equity loan, you basically sell equity in your company to raise the money you need. Options here include:
- Bank financing: you can approach your current bank and ask them for a loan for your business;
- Angel Investors / Venture Capital: These companies and individuals will inject money into companies to help them refinance and generally earn a shareholding share while doing so;
- Government sources: BNDES and other government and public banks programs, such as CAIXA and Banco do Brasil, may have great options to help your business get out of the complicated situation it is in.
What do you need?
You will need to show a solid and in-depth business plan with the full financial disclosure to give a picture of where the business is and where it is likely to go in the future. In many cases, you will also have to offer some form of security to make a consolidation loan. This makes lenders / investors feel more secure with the money they give to your business and makes them more likely to give in. So, for example, you can offer:
- Heritage of your business;
- Company assets as security;
- Personal property as collateral.
If you use personal property to secure a loan here, then think hard before you do so. It is one thing to use your home to secure a personal loan for consolidation purposes, but it is a completely different game from using it for business financing. Here, if your business goes down, you could very well lose your home too.
In some cases, you may be able to take other options instead of a consolidation loan. In some cases, you may have to seek these options if you do not qualify to apply for the loan in the first place. So, for example, if you are having trouble servicing your debts because you have cash flow problems, even if your company is doing well, then you can look at factoring as an option. This unlocks the cash flow process and gives you more of a regular income to meet your existing debts. Just to explain quickly, in factoring a company sell the accounts receivable to a third party at a discount, so as to create working capital.
Whichever way you choose, good financial planning is crucial to being able to structure this payment without ending the money before you end your debt.
If you have any questions or suggestions, do not hesitate to share them in the comments below!