Every business faces financing needs. This situation requires the implementation of several solutions: capital increase, self-financing or debt. It is this last point that interests us and that we intend to develop below.
What is corporate debt?
The company’s debt concretely represents the accumulation of sums due to one or more creditors. This situation must not be systematically perceived as a negative sign, as debt allows the company to cope with the gap that may exist between collections and disbursements. In some cases, the debt can be “short term” and habituated finance the need for working capital. In other cases, “long-term” debt is generally used to finance the acquisition of fixed assets (ie durable goods such as land, buildings and machinery). The long-term liabilities are therefore spread over a period of more than 12 months.
In all cases, there is a “critical threshold” of indebtedness above which the company could have difficulty repaying a loan. This is where the calculation of the debt ratio is essential and allows you to measure the level of debt of the company. If the debt ratio is considered “low”, then it can mean that the firm has acceptable leeway to borrow when needed. If the ratio is “high” (for example above 200%), it means that the company is heavily dependent on external financing and that it faces significant fixed financial costs that could affect its profitability.
How to save for companies in an over-indebted situation?
We saw it above: debt is first and foremost an essential financing mechanism to allow companies to do somake investments. However, this operation must be subject to absolute control and companies must learn to control the risks inherent in this type of approach. Hence the importance ofensure the balance between debt and debt. But how can you successfully reduce your debt without breaking the bank?
In many cases, entrepreneurs can be advised, for example, to finance their current account by injecting cash. In other cases, the reduction of indebtedness can also go through the revision of art business model of the company, e optimization of fixed and variable costs. In other words, the leader will have to track down the hidden costs through compromises. In the end, fewer investments are identified with respect to financing methods and their optimization *.
Hence an important question: should we opt for funding optimization or choose the more radical solution of budget cuts? What vision to adopt? In most cases, we will tend to recommend opting for a financial optimization approach first, before considering quantified reductions or thinking about a better organization. The financial optimization approach, in fact, must make it possible to determine what, in the organization of the business, brings added value. The company thus perpetuates the idea that it maintains value creationproducing or performing a service **.
To avoid expenses that do not generate any profit, it may be useful in some cases to outsource certain activities. A small company, for example, will have no interest in staff real estate solely for payroll management ***.
What is the calculation of the debt ratio?
The debt ratio (or debt ratio) makes it possible measure the debt ratio of the company. It is, by corollary, an excellent means of determining their solvency. The ratio, most often expressed as a percentage, is obtained simply by calculating the ratio between the debts of the company and the amount of its own capital. By carrying out this calculation, it will then be possible to determine the level of financial expenditure that a company has to face towards third parties.
Here is the formula for the debt ratio: (monthly payment of the credit (s) and fixed expenses / monthly income) x 100.
It is absolutely essential for a company to accurately determine its debt ratio, particularly with its financial partners. A banking institution, in fact, will absolutely want to know this indicator, in order to assess whether the company has the ability to assume debts at the expected level. Only then can the bank decide whether or not to accept a corporate loan application.
What aid is available for firms in difficulty?
Would you like to know your radio debt and are having difficulty repaying the various credits in progress? For this, the purchase of credits from a specialized institution can be an effective solution. The repurchase of credit is an operation that allows this consolidate all the loans contracted into a single monthly installment, with a single lender. The benefit here is that you have a single point of contact, ready to assist you in resolving your unbalanced financial situation.
To all intents and purposes, it is useful to remember that banking institutions also apply standards in terms of corporate debt. Also, we note that the leverage used to limit lending to a company is 33% (1). However, this fee is not a legal limit and may be subject to revaluation if the bank believes that the investment project carried out by the company is sufficiently profitable and achievable.
On the part of public authorities, the state is also mobilizing to help companies in difficulty emerging from the health crisis. In particular, there is the executive support mission, by introducing emergency aid for companies that consume large quantities of gas and electricity (2). Obtaining a loan of honor can also make it easier to obtain a bank loan (3). Its amount is generally estimated between 3,000 euros and 50,000 euros and can be obtained through support networks such as Initiative France, Réseau Entreprendre or the Association for the right to economic initiative (ADIE).
** https: //www.dynamic-mag.com/article/coupe-budgetaire-ou-financier-optimisation-what-vision-to-adopt.4935
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