What is the difference between raising funds for survival and for investment?

Recently, we have seen many posts about how to negotiate with suppliers, extend payments and preserve cash flow. Maintaining activity, honoring social, tax and supplier commitments is a challenging task for most companies after the advent of the New Coronavirus.

However, we simply forget that the Brazilian banking system is capitalized and willing to help recover the country. Naturally, it will receive its compensation for this. Including commercial banks, BNDES, FINEP and state development agencies have been working hard to offer emergency lines of working capital to help entrepreneurs in this time of crisis.

Investment

If you are thinking about raising funds from the financial market to help your company, one of the most important factors is not to let financial expenses harm the profitability of the business. In other words, we cannot lose sight of the rates and financial costs involved in credit operations, as this affects the entire result of the business, as well as all the financial capital for the acquisition of stock, machinery and equipment.

When seeking to raise funds, it is essential to clearly differentiate between raising funds for investment and growth and leverage for business survival in times of crisis.

Fundraising for investment results from the participation of third-party resources in the company's capital composition. The decision to use financial funding depends not only on the expected profitability of the investments to be made with third-party resources, but also on the costs of this loan (i.e. fees, IOF, expenses, notary offices, etc.).

It is necessary to consider the influence of this increase in debt on the company's financial structure, as well as the financial risk involved in the short, medium and long term. In other words, when a company holds third-party resources at a low cost, it multiplies its capacity to carry out innovation actions and generate new business or even launch products that it could not do with its own resources alone.

Survival

However, leveraging for business survival is much more critical and should only be done with clear plans for using resources, as survival alone is not enough; the focus is on using resources to ensure that the company can overcome the crisis and that it will still be able to repay its capital in the future. This does not necessarily mean that leveraging for business survival is exclusive to companies with few resources.

It is also crucial to evaluate healthy business possibilities to ensure cash flow preservation without compromising your stakeholders. Some banks and development agencies are offering subsidized rates, which signal important support for entrepreneurs in this time of crisis we are going through.

Specialized help

In both cases, the total effective cost of the operation must be taken into consideration, not only the nominal rate, but also information such as the grace period, taxes, IOF and additional fees must be evaluated. It is at this stage of analysis that consultancy such as that of 4C Innovation Consulting can make a difference, with guidance on the best lines of credit available and support in negotiations. Our work is also aimed at ensuring that your company has all the information it needs when raising funds for the company's growth through innovation and the development of new products. Access and request a Diagnosis.