Why Everyone Should Have a SOFOM as an Ally?By Fernando Padilla | Tue, 12/29/2020 - 09:00
It´s a reality that companies need access to financing to grow. Often, you can cover certain investments, machinery, or other needs with your petty cash, but always working with someone else's money, from a financial institution, will be more financially profitable and productive.
Investing your money in a piece of iron that depreciates every day to avoid a financial cost is like investing your money in a fund that promises negative returns. Having a line of credit ready in case of an emergency is easier than looking for it when you are already in an emergency.
Even if you already have some financing contracted or offered by your bank, which would be nice to have, having a multiple-purpose financial company (MPFC) as an ally, in addition to being a complement to any other source of financing, has great advantages.
On the one hand, they are the type of financial institution with the largest number of players in the country (55 percent of the country's financial intermediaries are multiple-purpose financial companies), which has to do with the fact that they are normally SMEs specialized in certain products, sectors or regions. They are local companies and not huge businesses, which gives them an advantage that a big bank can’t offer: flexibility and customization. They will work harder to understand your business model and to find a financial solution based on the needs of your company.
Additionally, an SME tends to operate faster and with fewer bureaucratic processes, so its response times become much faster. And when we talk about financial products, flexibility, customization, and speed are key to decision-making, above cost.
When you arrive at a large company, regardless of the sector, the buyer of the product or service must adapt to the offer of the large company. However, when you deal with a similar company your size or even smaller, it will always seek to suit your needs. Large traditional financial institutions such as banks offer standardized products where you must adapt your company to their product.
There are about 1,500 MPFCs in the country of all kinds: they give personal loans, business loans, leases, factoring, payroll loans, microcredits, student loans, etc. There is practically one or more MPFC for every existing need of a company. The MPFCs have specialized and become niche entities focused on financial solutions.
When a company is in its growth stage, or when it has an emergency issue that requires immediate liquidity, having a MPFC next to you can be relatively simpler. In addition, MPFCs do not focus only on offering loans, they can also help you create trusts, structure financing for your clients and work with the factoring of your suppliers, among many things. In other words, they are not only there be your financing provider, they can also be your ally in the development of your company's financial strategy.
Often in the business sector, it’s believed that MPFCs have very high rates, or that their financing is expensive, but that is not entirely true since there are all kinds of players in the MPFC universe. There are many that offer cheaper financing than traditional banking, there are some whose rates are very similar to banks and others that yes, probably have higher rates. The reality is that in the MPFC universe, and depending on the sector, product or region, the rates vary a lot.
The rate is also relative. One thing is the rate that appears on the advertising that comes from your bank and another is the rate with which you manage to contract the financing. Before the rate, you must evaluate which institution will authorizes your financing. Offering a very low rate in advertising in useless if in the end they do not authorize it. The probability of approval of a financial line is much higher in MPFCs than in banks.
But the most important factor, and often people do not consider it in their decision-making, is the time it takes to give you a loan. How much is your time and that of your people worth? The opportunity cost is key in the hiring decision. If you have the time to wait months for a bank to give you a loan, that's fine. But if time is key in your decision-making, so is the cost/resolution time.
MPFCs, given their size, flexibility, focus and segmentation, typically operate at a faster rate than a large bank, in addition to the customization of products tailored to your needs.
It should be noted that the political changes that Mexico is experiencing are clearly generating macroeconomic volatility. This does not mean a crisis, but it does generate nervousness and uncertainty, especially in large capitals, which causes traditional financial institutions to take a more conservative position. That means that these institutions usually offer fewer loans or only to the most secure or better collateralized.
Even if you are a company that perhaps has a revolving credit line with a bank, they may stop it, closing it without warning if you are not classified under their lowest risk tab. It is not because banks are bad. They have a prudential responsibility to protect savings and that is why they must act conservatively.
Statistics show that in Mexico, 100 percent of large companies obtain credit financing from any of the available channels. Among medium-sized companies, only 39 percent have access to financing, among the small ones, only 27 percent have access to financing and the micro-enterprises have only 10 percent.
Many SME companies and entrepreneurs do not have access to formal financing, which is essential to grow your business or to deal with emergencies, and to build a credit history and create a financial experience.
Today in Mexico, 60 percent of companies obtain their first loan through an MPFC. In better times, the credit from a MPFC often helps to open doors with a bank; it serves as a medium- and long-term strategy to develop your financial structure.
In your financing strategy, it is incorrect to focus on a single financing provider. It is important that your company has alternatives and differentiated products. For example:
- A revolving or checking account credit line for short-term needs.Factoring to make your invoices liquid when your client finances with you.
- Leasing to acquire equipment and furniture.
- Simple credit for medium- and long-term productive working capital.
- Mortgage loan for the acquisition of buildings or offices.
- Payroll credit to finance your workers.
Almost always, it is impossible to get all your solutions from a single institution. Diversify your sources of funding, use financing in your favor and wisely. That will generate profitability and growth for your business.
There are MPFCs of all colors that will be able to help you implement and strengthen your financial structure. Obviously, debt always must be managed wisely and responsibly so that it really helps you cope with growth or emergencies.
There are also many MPFCs so compare because, in the end, they can be your best financial ally. One place to explore the different serious MFPCs available is ASOFOM ( www.asofom.mx ). It is not the only one, but it is the largest MFPCs association in Mexico and Latin America.
Be careful, however, with the companies that provide loans and that are not regulated by CONDUSEF or by the CNBV because the risks as a user can be high. It is not that they are bad companies, simply that you do not have the security or the origin of the resources, nor do you have protection as a user against any abuse.