5 Reasons That May Lead to Withholding Credit for Your Business

Credit denial can be a major obstacle for the entrepreneur to obtain resources and invest in the growth of his business. Learn how to avoid this!

Credit is an important strategic tool for the company to continue investing in its growth. It prevents the company’s operations from slowing or even slowing down. But conquering this resource can be an arduous task. The refusal of credit is a barrier that haunts many entrepreneurs, who can see no way out before a non-financial institution.

It is important to remember that banks and financial institutions conduct a detailed analysis to approve or not the granting of credit. The criteria used by them range from evaluating the company’s net worth to the quantity and quality of customers.

Despite the restrictions imposed, the credit concessions in Brazil are at full throttle. According to the Central Bank , these operations exceed R $ 300 billion per month, attesting to the value of credit to foster economic growth in the country.

And to ensure your company’s sustainable growth, it’s critical that you fully understand what are the main barriers that can prevent your company from winning the long-awaited credit to undertake and so make the best business decisions. That’s what we’ll talk about in this post.

1. Do not reach the minimum grade to get the requested credit

  • 2. Have restrictions that result in the refusal of credit
  • 3. Not achieving the minimum necessary due to insufficient economic and financial results
  • 4. Have low or inconsistent billing
  • 5. Present incorrect or outdated information

1. Do not reach the minimum grade to get the requested credit

First, know that your company’s relationship with the credit market is being evaluated at all times. The result of this evaluation is called “credit score”, or “credit score”, a statistical analysis model that serves as a tool for financial institutions to grant the resource.

Among the main behaviors relevant to this evaluation are:

  • payment habits;
  • updating of cadastral data;
  • history of negative debts;
  • relationship with companies.

In summary, the higher your score, the lower the chances of you suffering from the credit refusal that could prevent you from receiving funds for investments .

There are several statistical models in the market for credit analysis , and one of the best known is the Serasa Score, which ranges from zero to 1,000 points. Those with a score above 700 points are considered as low default risk.

The company holding the statistical analysis does not define a court order, so to speak. It is up to financial institutions to establish a minimum score. If your business is below this amount, you will most likely have the credit declined.

2. Have restrictions that result in the refusal of credit

If the company is denied a credit protection agency – SPC or Serasa, for example – the credit denial is practically certain. This also applies to members since it is common for financial institutions to analyze the CPF of entrepreneurs seeking restrictions. It is understood that if a member has problems with their personal finances, this will likely spill over into the company’s finances.

The scenario here may be quite different depending on the bank or the financial institution. Although the Central Bank keeps track of defaulters for only two years, banks can keep copies and use these records as a basis for credit refusal, even if this is questionable.

In other cases, the company can pay off its debt at the financial institution and then get release for a new credit. Other problems that are restrictive here are usually related to:

  • lack or disagreement in legal documentation, such as official records or licenses;
  • company without a solid billing history;
  • lack of quality of the customer portfolio.

3. Not achieving the minimum necessary due to insufficient economic and financial results

To grant the credit, the financial institution wants to have guarantees that your company will be able to honor with commitment. Here you enter one of the 5 Cs of credit analysis : the capacity, that is, the margin the business has to shoulder new debts.

Consideration should be given to the debt the company already owns, the maturity flow of its obligations, the profile of debts and everything else that could impact the ability to repay new credit.

4. Have low or inconsistent billing

It can happen that your company and its partners are even in the credit market, without debt or any other bureaucratic pendulum, but still, take a credit refusal. What could it be? The answer may be in billing.

If your business’s budget is tight, just enough to pay off your current debt, this can be a bad sign. After all, any financial prediction could jeopardize all the company’s operations.

For this reason, the history of entries and exits and the tax returns are very requested records in credit analyzes. The objective is to assess whether your cash flow still has enough margin to accommodate a new obligation. Other documents that may be requested include:

  • analytical and equity balance sheet;
  • social contract;
  • Integrated Declaration of Economic and Fiscal Information of the Legal Entity – DIPJ;
  • year-to-date monthly billing;
  • evaluation of a third audit;
  • if the idea is to open a business or expand its operations, it will be necessary to present a business plan;
  • membership.

5. Present incorrect or outdated information

 7 Mistakes Businesses Make When Borrowing

Maybe credit denial has a simpler reason. As we have seen, the financial institutions analyze a series of information to grant the credit or not. If the data passed on is incorrect or outdated, there may be problems. So be aware of the registration, correctly informing all the data and making sure they are up to date.

It is clear that each financial institution or bank will define its own policies to evaluate the granting of credits. Even factors related to the country’s economy may interfere with the opening of credit in the market – in periods of instability and recession, the rules may even become more rigid.

But it is up to the entrepreneur to always watch over his cash flow to maintain a stable and promising financial situation, reducing to the maximum the chances of having the credit denied.

It is fundamental that the entrepreneur keeps his documentation up to date and develops a good relationship in the market. In this way, you will avoid refusing credit and will always keep the doors open for resources in order to ensure sustainable growth for your business.

 

Long-term debt – Why it matters so much

Long-term debt is a term that comes up again and again in connection with corporate financing . We clarify in this article why long-term debt is of the utmost importance both from an entrepreneurial and a financier’s point of view.

But before we go into their great importance, we first clarify what is actually understood by the term “long-term debt “.

Long-term debt is debt capital available to the company for more than 5 years.

In addition to traditional bank liabilities, bonds and pension provisions are often included.

Therefore, the composition of the long-term debt from the balance sheet is calculated according to the following formula:

Accordingly, long-term debt does not appear on the balance sheet at first glance, as there is no single balance sheet item with the same name.

Instead, it must be developed as a substrate from all the debt. It is first on the liabilities side of the equity from debt to separate. So what is actually real debt or equity on the liability side.

If this is done, only the maturity must be taken into account and the above formula applied.

And you have already developed the long-term debt on the balance sheet.

Pension provisions

Provisions can not be viewed per se as long-term debt. The provisions also depend on the maturity. Of course, tax provisions or other provisions, the risk of which could be realized within a very short time, can not be assessed as long-term.

Accordingly, tax provisions and other provisions are classified as current liabilities.

Only the pension provisions, which regularly have a very long residual term, are added to the long-term debt.

balance Sheet analysis

balance Sheet analysis

But balance sheet analysis is where long-term debt comes to its true meaning. Because here it is important as part of key figures:

For the calculation of the asset coverage ratios 2 and 3, the long-term debt capital is indispensable as part of the formula. And, as we’ll see later, both ratios are important yardsticks for banks, creditors and entrepreneurs themselves.

Asset coverage ratio 2

Asset coverage ratio 2

The asset coverage ratio 2 is calculated according to the formula

This is already evident in the long-term debt in the meter as part of long-term capital.

After all, according to the golden accounting rule, fixed assets are to be financed by long-term capital.

In this case, it is necessary to remove the short-term capital in the balance sheet in order to be able to make a statement about the long-term nature of the financing of fixed assets.

System coverage 3

Thus, information is provided as to whether fixed assets and inventories are financed by long-term capital.

Further interesting contributions to the determination and analysis of individual key figures can be found on the Controlling Portal.

In the balance sheet analysis , therefore, the true meaning of long-term debt first becomes apparent. As part of the long-term capital, it expresses that part of the debt that remains with the company in the long term and thus enables the entrepreneurial activities from the ground up.

For while short-term debt can be withdrawn from the company almost at any time and therefore already seems to have been withdrawn from medium-term corporate planning, long-term debt remains with the company for more than 5 years.

As a result, long-term debt capital forms the basis of every entrepreneurial activity and, accordingly, of all corporate financing.

There is no real reliable ratio for long-term debt.

Instead, the asset coverage ratio 2 (see above) should be sought as a “golden accounting rule” or “golden banking rule”.

So the entire fixed assets should be financed by equity and long-term debt.

So if there are already large amounts of equity , why should there be a high ratio of long-term debt? If in doubt, this could even be harmful to your income. So the financing structure can also be judged from the outset!

Conclusion meaning long-term debt

Conclusion meaning long-term debt

As you can see, long-term debt capital only really unfolds its effect in balance sheet analysis .

There, however, it is a determining factor for the analysis of the overall financing structure of a company.

Only when taking into account long-term borrowed capital in the assessment of asset financing does a meaningful picture emerge.

The entrepreneur himself can always keep an eye on whether he can pursue his entrepreneurial activities yet free. Because if these banks are financed only for a short time, he will have to get used to the fact that he is constantly being “fingered” by the financing banks.

Long-term capital consisting of equity (possibly supplemented by mezzanine capital / hybrid capital , subordinated loans ) and supplemented by long-term equity provide entrepreneurial scope – in every respect.

And now to you, dear readers, how do you feel about long-term debt? Has it played a role in your previous financing considerations?

 

One of the greatest virtues is to cancel your credit history and start over

An insolvency or bankruptcy situation is unpleasant for everyone. If you can no longer pay the debts you have, you need an effective system to solve these problems. One of these tools for negotiating or canceling debts is the insolvency law.

According to the Wikipedia page , declaring bankruptcy or declaring insolvency is :

” It is a situation of generalized insolvency, which sets it apart from the mere cessation of payments. It is a situation of permanent insolvency over time. It is a situation of insolvency susceptible of being appreciated objectively through events indicative of bankruptcy. It is a situation of insolvency of such magnitude that it becomes insurmountable for the debtor. “

Insolvency Law

Do you have over debt? The insolvency law can be the salvation for your economic problems. Thus, you will be able to liquidate your assets, renegotiate with your creditors the debts that you can not pay and manage your financial situation.

Situación de insolvencia, negociar mis deudas.

How to benefit from the insolvency law

Law no. 154 or bankruptcy insolvency law establishes in its first article:

“Article 1º. The declaration of bankruptcy presupposes the debtor’s insolvency status. The insolvency status is manifested by one or more non-compliance or other external events that at the discretion of the judge demonstrate the impotence of assets to regularly meet the debts at maturity, regardless of the nature of the same. “

In this way, to be able to host you, you will have to be able to certify that you can no longer assume the fees corresponding to the payment of your debts.

Virtues of the insolvency law

One of the greatest virtues is to cancel your credit history and start over. In this way, asking for a loan, liquidating your assets or negotiating your debts will no longer be a problem for you.

Expert lawyers in claims to financial institutions and banking law may start various legal proceedings.

To begin with, reunification   of personal debts, is a process in which the client and the suppliers agree on a renewed payment agreement. What can change in your favor? Reduced interest rates, extension of installment periods or cancellation of interest.

On the other hand, the liquidation of your assets. The liquidation of your assets takes place in the judicial processing of the payment or cancellation of debts, through the exchange of personal assets. In this way, the liquidation of the consumer’s debt takes place and it is rehabilitated for legal purposes.

Finally, the ordering   of corporate debts, allows to extinguish the alarms of indebtedness of the company. You will increase the chances of success of your business project.

Expert lawyers in the insolvency law throughout Spain. Declare insolvent is no drama. Moreover, together with our advice, you can be the first stone to stop having debts.  

Abogados en España, ley de insolvencia.