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The Credit Access Center Guides on Requesting Credit While in Debt, Debt Prioritization, and Resource Management Tips.
If being in debt is a reality in your life, know that you are not alone. Many people face debt situations, whether for personal or business reasons. It is important to seek ways to reorganize your finances and seek professional help if necessary, to get rid of this situation.
It is essential to understand that being in debt does not necessarily mean being delinquent. There are strategies and alternatives for debtors facing this situation. Do not despair, seek guidance, and take the first step to get out of this situation.
‘The Number of Indebted Companies Reaches Concerning Levels in September 2023’
In September 2023, Brazil registered an impressive 6.6 million companies with 47.10 million debts, totaling R$ 122.2 billion, according to Serasa. Of this total, 5.882 million are micro and small enterprises, which account for 40.3 million debts, amounting to R$ 98.1 billion.
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The situation of indebted companies is characterized when debts exceed the capacity to pay due to a lack of resources, and business owners cannot meet financial obligations. This condition may be caused by a variety of factors, such as excessive debt, low operational performance, management issues, adverse economic impacts, or market changes.
‘Although the word sounds bad, indebtedness can be a strategic tool to boost the growth and development of companies when used consciously and planned. However, it is essential that companies carefully assess the costs and risks involved, as well as their ability to generate returns on the investments made’, explained Thiago de Assis Gonzaga, an analyst at the Credit Access Center (NAC) of Minas Gerais.
In this month’s NAC Responds, the specialist answers questions about types of indebtedness, what to pay first, whether it is possible to request credit while in debt, among other queries. Check it out:
‘Main Types of Indebtedness’
Indebtedness can be classified as sustainable or unsustainable.
- Sustainable indebtedness is a company’s ability to manage debt responsibly and balanced, ensuring that debt levels do not compromise the ability to pay or invest in strategic projects. It is about maintaining a balance between financial resources obtained through loans and the company’s ability to honor those commitments, whether in the short, medium, or long term.
- Unsustainable indebtedness occurs when debts exceed the ability to pay and negatively impacts the company’s financial health and credibility in the market, limiting investment and growth capacity.
Indebtedness can be a strategic tool to boost growth and development of companies when used consciously and planned, enabling investments in expansion, innovation, and modernization, contributing to competitiveness and solidity in the market. However, it is essential that companies carefully assess the costs and risks involved, as well as their ability to generate returns on the investments made, to ensure that indebtedness effectively contributes to the strengthening of the business.
‘How to Get Out of a Situation of Indebtedness’
It is crucial to adopt a strategic approach. Start by paying debts with higher interest rates, followed by short-term debts, such as bank loans and overdue bills, due to the immediate impact on financial health. Also consider medium and long-term debts in the strategy, weighing not only the amount but also the immediate and long-term financial impact.
‘Obtaining Credit While in Debt’
Yes, it is possible to seek credit; however, the approval for such is subject to a thorough analysis by financial institutions.
If the company presents a robust plan to pay off existing debts and demonstrates repayment capacity, some institutions may consider granting new credits, although obtaining loans while in debt is often marked by the challenge of higher costs – interest rates – due to the associated delinquency risk.
‘Credit Lines to Solve Indebtedness’
Yes, there are lines, programs, and types of credit that can support companies in regularizing debts with more favorable conditions, such as lower interest rates and more flexible payment terms as some examples below.
- National Program for Support to Micro and Small Enterprises (Pronampe): created to offer credit to micro and small businesses with advantageous conditions, such as reduced interest rates and longer payment terms.
- Advance Receivables: a type of credit offered by the financial system that consists of advancing the timeline for receiving payment for the sale of products and services.
- Restructure: allows for the extension of contract installments, possibly changing the interest rate.
- Refinancing: consists of a new credit operation replacing an open contract, where new credit conditions will be established.
- Loans with collateral of property or vehicle: in this type of credit operation, the asset is encumbered, and the borrower receives a percentage of the asset’s value.
- Portability: refers to the migration of a credit operation from one financial institution to another, under more favorable conditions.
There are various options for credit lines available, so we suggest that entrepreneurs contact the bank’s credit agent they use, as they can guide them on the most suitable solution.
‘Recommendations to Avoid Indebtedness’
The main tips from the specialist at the Credit Access Center are:
- Avoid as much as possible for the company and partners with high indebtedness to fall into delinquency and be included in credit protection registrations. Any registration entries restrict the company’s credit in the financial system, as well as making suppliers stop offering payment terms for raw materials.
- Maintain strict financial control, monitoring revenues, expenses, and cash flow.
- Develop a solid business plan with realistic financial goals.
- Analyze business risk to be prepared for unforeseen events.
- If the company is already in debt, negotiate with creditors to restructure payments or seek more favorable conditions.
- Make investments based on solid analyses; avoid hasty decisions.
- Conduct periodic assessments of financial performance and adjust strategies as needed.
- Do not mix company accounts with those of the partners. The company has its own commitments to suppliers, customers, legal obligations, and payment of employees and partners’ salaries. Expenses of partners and family members must be covered by legal withdrawals; otherwise, it will compromise the company’s financial health.
- The production costs and selling prices of products must be adequate for the company to maintain its profit margin and ensure its vitality.
- In the case of high indebtedness, strict measures are necessary to keep the company active, such as downsizing the business, cutting unnecessary expenses, selling obsolete stock, and if necessary, reducing staff.
- Ensure that creditors perceive the indebtedness as circumstantial and that the company is taking measures to overcome the indebtedness.
‘NAC Responds: Clarify Your Questions About Credit’
Every month, NAC Responds, produced by the Industry News Agency, answers the most frequently asked questions from entrepreneurs and managers when seeking credit for their businesses.
‘Through guidance, NAC facilitates access to credit for micro, small, and medium industrial companies. Credit is essential for the operation of businesses, whether to enable new investments or to meet routine cash needs’, points out Fábio Guerra, the CNI’s Economic Policy Manager.
Since 2015, NAC, from the National Confederation of Industry (CNI), advises industrial MPEs on the credit lines available in the market, providing support with information about documentation, interest rates, guarantees, number of installments, financeable items, among others.
Learn more on the Credit Access Center (NAC) website or contact the federation of industries in your state.
Source: Industry Portal
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