Why is a digital financing alternative more convenient for your startup than a bank loan?
Traditional loans offer fixed amounts with a fixed interest rate for a fixed term that is paid in fixed installments. This rigidity forces companies to borrow more than they need and therefore to pay more interest than they should.
June 21, 2021
Read for 4 minutes
The most common problem for Companies today, and the main reason for bankruptcy, is the lack of cash flow. In other words, when entrepreneurs run out of money, a common mistake is to resort to SME loans provided by traditional banks.
Traditional loans offer fixed amounts with a fixed rate of interest for a fixed term that is paid in fixed installments. This rigidity forces companies to borrow more than they need and therefore to pay more interest than they should.
This is why Higo, the platform that allows you to pay, collect and fund all company bills in one place to maximize cash flow, recommends using digital alternatives that allow them to work, reduce the risk of bankruptcy and not go into bigger debts.
The main reason for using these financial alternatives is that they can guarantee your company liquidity at all times. It’s worth noting that even the most profitable industries can have operational flow issues because you never know when the market may turn 360 degrees.
Because of this, business owners need to look for funding alternatives that help them pay their suppliers with a single click when they don’t have the money, with the ability to settle that payment within 60 days. .
This gives the company security if the flow of capital is interrupted due to some external factor, it also prevents it from going into debt and having to fall back on a traditional loan that can help it right now but will affect it in the long term.
Another factor is the sudden and unplanned decline in sales. There are products and services that are sold more at certain times of the year, depending on the industry and needs, which is why entrepreneurs should know that there is no single formula for managing resources within their company, because on the contrary, they must always be flexible and adaptable to context-related Changes remain.
Another problem facing companies is that customers are taking too long to process payments to the company. Because of this, companies need an alternative that will advance the invoice amount to the company. This prevents them from being hit by the lack of liquidity while waiting for the money from the client who is late in paying their finances.
In this way, the entrepreneur has the money and the platform can pay for the early payment afterwards.
“It is important for companies in the country to have a financing alternative that helps them avoid the lack of business flow leading to the closure of the business. Even more so in Mexico, a country where the life expectancy of companies in the center of the country is between 7 and 9 years, which, according to Inegi, has dropped to 5 years in some entities in the interior of the republic “, considered Rodolfo Corcuera CEO & Co-Founder of Higo.
The entry and exit of cash is like the oxygen of startups. Without cash flow, companies are at high risk of having a negative impact, even if they are profitable. Entrepreneurs need platforms that can help them avoid the red numbers and streamline processes quickly and with a single click, rather than resorting to traditional methods that, beyond obtaining a loan, can be the start of a long road to debt and interest payments.