Every business project must have adequate financing to promote its growth and development. Bank financing, one of the most traditional and consolidated options, continues to be a reliable way to obtain the capital needed to make major investments. Through loans and lines of credit , entrepreneurs can access the resources needed to acquire equipment, hire staff or expand their business, thus taking their ideas to the next level. In addition, many banking entities offer customized financing options, adapted to the needs and capabilities of each project, which makes it easier for entrepreneurs to manage their financial obligations in a sustainable and strategic way.
Below, we cover the main aspects of bank financing for the self-employed and small businesses, a key resource for those looking to capitalize on their ideas and grow their business. Bank financing offers a variety of options, such as loans, lines of credit , and short- and long-term financing, tailored to the specific needs of each type of business.
Read more related content:
– Credit card interest rates: how they influence your budget and finances
– Basic concepts about credit cards for beginners: learn to use them smartly
This type of financing allows self-employed and small businesses to access the resources they need to expand their operational capacity, invest in technology, acquire inventory, or even improve their cash flow.
Additionally, many banks offer personalized advice and programs specifically designed for self-employed individuals and SMEs, with the aim of making it easier for them to manage their businesses’ finances. These services include guidance on how to best structure payments, optimize cash flow, and plan how to use funds efficiently and responsibly. Through financial advice, entrepreneurs can receive advice on how to improve their credit profile, properly manage their debts, and avoid falling into default situations. Financial planning tools are also provided to help entrepreneurs track their income and expenses, allowing them to make informed decisions about investing and growing their business.
– The current business lending landscape
– Banks’ obligations to lend to self-employed individuals
– Tips for applying for a loan
– Available public lines of credit
Current landscape of bank loans for the self-employed:
Starting a business requires an initial investment to enable the start-up of the business and cover initial operating costs. Traditionally, obtaining credit depended almost exclusively on bank loans, which were the cornerstone for self-employed workers and SMEs seeking financing.
However, access to credit for these sectors has changed considerably since the years of the economic crisis, when financial institutions tightened their credit policies and reduced the availability of funds. This adjustment of access conditions has led to the search for financing alternatives, giving rise to crowdfunding platforms, venture capital and specific public aid for the self-employed and small businesses.
Today, although bank financing remains important, entrepreneurs and SMEs have a greater variety of options to secure the capital they need to grow their businesses.
Today, the financing landscape for self-employed workers and SMEs has undergone significant changes, reflecting a trend towards fewer loans being requested, but with greater ease in granting them. This is partly due to the diversification of available financial alternatives, such as crowdfunding platforms, investment funds and specific lines of credit for entrepreneurs, which allow these businesses to access capital in a more flexible way.
At the same time, many financial institutions have adapted their policies and procedures to streamline lending, resulting in approved applications being processed more quickly and efficiently. This evolution in access to credit has allowed the self-employed and small businesses to have a greater variety of options when it comes to financing their projects, thus facilitating their growth and sustainability in an increasingly competitive economic environment. Reduction
In the demand for credit by the self-employed
More and more entrepreneurs are opting for alternative forms of financing to bank products, such as FFF (Family, Friends, and Fools) financing, personal savings, subsidies or the so-called capitalization of TFR pay.
According to the latest Entrepreneurs study of 2019, 38.3% of self-employed workers have requested some type of bank loan, according to the Association of Self-employed Workers (ATA), which confirms that only one in three entrepreneurs resorts to bank financing. This demonstrates the slowdown in demand for credit by self-employed workers and small businesses.
Growing trend in granting bank loans
Although the number of self-employed and SMEs that the demand for bank loans has decreased, the granting is higher.
Read more related content:
– Guide to choosing the ideal credit card: what to consider based on your lifestyle
– Prepaid credit cards: how they work and when they are the best option
Recent reports from regional financial organizations indicate that banks are more willing to grant credit to businesses.
In fact, around 21% of SMEs believe that institutions are more willing to grant loans. Only 5% of SMEs that applied for a loan between October 2018 and March 2019 had their application rejected. However, according to financing surveys in the region, credit conditions continue to be more flexible for large companies than those required for self-employed workers and SMEs.
Bank requirements for granting loans to self-employed workers
The key issue for a self-employed person when applying for financing concerns the requirements and conditions of the bank to approve the credit.
Although access to credit has improved, banks believe that the income of self-employed workers may vary, which affects their ability to accept loan conditions . In addition to the usual requirements for an employee, banks usually require additional documentation relating to the self-employed worker’s economic activity.
What do banks examine?
This is essential, as the default rate among self-employed workers and SMEs tends to be high, which pushes banks to look for strategies to reduce risks and ensure the sustainability of their loans.
For this reason, financial institutions carefully examine the payment history of each applicant, as well as their possible inclusion in the default registers, before approving the financing. In addition, the bank carries out a thorough assessment of the customer’s debt level, verifying that it does not exceed 40% of their monthly income and, in some cases, even limiting it to 25%.
This measure aims to ensure that the self-employed worker or SME can meet their financial commitments without compromising their cash flow and, at the same time, allows the bank to mitigate the risk of default.
These rigorous assessment policies reflect the importance of having a solid and transparent financial situation to access credit, encouraging small businesses to properly manage their finances and build a favorable credit profile that facilitates future financing opportunities. They also consider the payment terms, the amount requested, the percentage of financing and the feasibility of the project. If the applicant is already a customer of the bank, they will have greater concessional facilities. They examine all personal or business loans and, with this information, determine the level of debt. Otherwise, they may request a financial product to establish a prior relationship.
Depending on the level of risk perceived by the bank, it may require personal guarantees or other additional guarantees to secure the loan granted. Personal guarantees are commitments signed by a third party responsible for the debt in the event that the applicant cannot make payments.
In addition, in situations where the risk is high, the bank may require more specific guarantees, such as the pledge of shares or participation in investment funds. This option consists of depositing financial assets as collateral, which allows the bank to recover the amount borrowed in the event of non-payment.
The requirement for such guarantees aims to minimize the risk for financial institutions, providing greater security in the repayment of the credit. Therefore, self-employed workers and SMEs should be prepared to offer this type of guarantees when applying for loans, which may require more detailed financial planning to ensure that they have sufficient resources to meet the established requirements.
Documentation needed to apply for financing as a self-employed worker
If you are looking for financing for a new project or additional capital, it is essential to present a detailed business plan so that the bank knows the economic activity to be developed and evaluates the feasibility of financing.
It is advisable to include all relevant business information (necessary investments, proforma invoices, suppliers, customer profile, product or service features) to demonstrate its potential for success.
Tips for applying for a loan
Look for specific banking products for self-employed workers, which best suit the needs of the sector. Focus on the characteristics of the loan, such as the interest rate, which is usually fixed or variable and generally does not fall below 10%, the repayment period, which can be up to 15 years, and the amount financed up to $75,000, a higher value. to other types of personal credit.
As we mentioned, prepare a complete business plan before applying for the loan. It includes an amortization table with the interest and principal to be paid over the life of the loan. It is highly recommended that you consult several financial institutions before making a decision on financing, as this will allow you to compare the conditions offered and negotiate effectively. Each bank has different policies and products, so it is important to evaluate aspects such as interest rates, payment terms, collateral or guarantee requirements, and fees associated with loans.
By comparing different options, you will not only be able to find the alternative that best suits your needs, but it will also allow you to have a broader negotiating basis. In some cases, if you demonstrate that you are considering multiple offers, you may be able to obtain more favorable conditions, such as lower interest rates or more flexible conditions. Negotiating with banks gives you the opportunity to obtain the most advantageous banking product for your business, thus optimizing financing and contributing to more efficient and sustainable financial management.
Public credit lines
Self-employed workers can also access aid and subsidies. Through the official credit institutions of Latin America, dependent on the Ministries of Economy and Finance, it is possible to request financing on favorable terms.
The lending activity of these institutions is usually mainly focused on financing investment projects and covering liquidity needs for companies, especially in times of credit constraints or economic instability. In these times, banks try to support SMEs and self-employed workers with loans that allow them to continue operating and growing despite the difficulties.
Read more related content:
– Understand credit card interest rates and how they affect your finances
– Tools for an effective student loan repayment plan
These loans not only help finance the purchase of machinery, the expansion of infrastructure or the hiring of staff, but also provide the support needed to meet immediate payments and maintain cash flow.