Lose the Fear of GrowingBy Marion Benitez | Tue, 01/25/2022 - 15:01
One of the main fears of every entrepreneur is seeking financing for their company. They are afraid of high interest rates, that they may not be creditworthy, that conditions could be unfavorable or that acquiring these loans would take too long.
In Mexico, we have official indicators of how small and medium-sized enterprises (SMEs) finance themselves. According to the Quarterly Survey on the Evaluation of the Credit Market conducted by the Bank of Mexico (Banxico), during the period January-May 2021, Mexican companies financed themselves in the following way: 65.8 percent used financing from suppliers, while 34.4 percent used credit from commercial banks. In addition, 17.8 percent of the companies reported having used credit from other companies in the corporate group, 4.8 percent used development bank financing, 5.6 percent used financing from banks domiciled abroad, and finally, 1.6 percent used debt issuance.
In the same vein, the study of Basic Indicators of Credit to SMEs, published by Banxico, indicated that between April 2020 and March 2021, the share of credit to SMEs in financing within the non-financial private sector was 9.6 percent. This was below the share of consumer credit, which was 22.8 percent, and the credit to large companies, 44.2 percent.
Digging behind these figures it is interesting to note that when in need of capital, the first reference is to turn to traditional banking, but this sector has faced some challenges derived from the pandemic, which has resulted in a decrease in its capacity to operate.
Corporate credit represents 56 percent of the total credit portfolio of commercial banks; this product accumulated 14 months of contraction in September. According to figures from the Comisión Nacional Bancaria y de Valores (CNBV), up to September, the balance of the credit portfolio to companies stood at MX$3.258 trillion (US$159.21billion), which meant a real decrease of 11.5 percent compared to the same month in 2020.
This does not mean that companies have stopped requiring financing, but given the effects of the pandemic, the needs of companies have focused on issues that traditional banks often cannot resolve. There are other financing alternatives that SMEs can opt for, which are more flexible, agile and, thanks to their algorithms, their credit analysis is tailored to reach each specific SME.
Some of these services include:
“Sociedades Financieras de Objeto Múltiple” (Sofomes) are corporations that have a current registration with the “Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros” (CONDUSEF), and whose main corporate purpose is the professional performance of one or more activities for granting credit, financial leasing or financial factoring.
The requirements for their incorporation are defined in Article 87-B and 87-K of the "Ley General de Organizaciones y Actividades Auxiliares del Crédito" (LGOAAC), as well as in the general provisions issued by CONDUSEF.
Sofomes are financial institutions that can be either "regulated" or "unregulated."
One of the main advantages of this model over traditional financial institutions is that their lending requirements are less rigid than those of a bank.
Digital platforms are another service we consider relevant. These lending platforms can be a perfect alternative for SMEs, as the processes are faster, grant immediate credits and flexible amounts. Their whole process is online and easy to use.
Key to offering faster services is digitalization. This does not mean that the security locks are breached, neither for the companies nor for the platforms, as they have robust evaluation systems. The interest rates offered are competitive, and can even be lower than those of traditional banks.
Cumplo is an example of a leading digital factoring platform.
As we have seen, due to the pandemic, lending by banks has slowed down, but for digital platforms it has represented an opportunity for growth: connected to the internet, one can do business from anywhere, without the need to go to branches or do paperwork in person. This has resulted in many entrepreneurs preferring digital platforms.
Moreover, one of Cumplo’s key characteristics, beyond being a fast, simple and flexible platform, is that we are B Corp-certified. What does this mean? It means we are committed to our customers and focused on continuous experience improvement, providing a transparent service, and always favoring workers’ welfare, community and environment. We go beyond our products and services more than any other platform, always providing a fair rate.