When the company walks with a somewhat adjusted credit rating, additional guarantees come into play in financing for companies. Today we are talking about all that you can offer to the financing entity, bank or not, to reinforce your request and obtain better conditions, both in amount and in the financing term, as well as in interest rates and commissions; the guarantees facilitate access to credit.
Personal and corporate guarantees
Perhaps one of the most common of all of them is the personal guarantee of the partners or of any other person who is willing to guarantee the operation in exchange for risking all their assets in the process, yes, all their assets; the guarantor is responsible for the excellent end of the procedure with all its assets, whether it is a natural person or a legal person.
On many occasions, business people deliberately offer their personal guarantee without stopping to think about the possible consequences.
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The financing entity will assess solvency by adding all your assets and subtracting all your debts. It will also evaluate your ability to pay by adding all your income compared to all your expenses in the same way that it analyzes the holder of the financing.
Mutual guarantee societies
A great instrument to offer a guarantee. The SGRs offer monetary guarantees for financing operations, up to a certain amount, which can be up to 100% of the process. This formula allows companies to expand their borrowing capacity since the financing entity gets a travel companion that takes risks with it, the SGR. And this is not only limited to banks; the MyTripleA crowdlending platform also supports them.
Pledge of company shares
It is rare in small companies. Still, it is a figure that is usually used when the entity already has an active risk with the company and needs to reinforce the guarantees. However, it is not exclusive to this situation. A financing formula that implies the pledge of shares is the convertible loan; it is a loan that entitles the entity to convert it into company shares at a particular valuation and under certain circumstances agreed in advance. This type of financing is prevalent in companies in the initial stages of their life cycle.
Pledge of stocks
This figure also exists and is highly developed in the UK or USA; in case of non-payment, the entity has the right to become the owner of part of the company’s stock. The entity must know how to properly value that stock and liquidate it reasonably quickly to take this type of guarantee into account.
Company Fixed Assets
We imagine that you have heard of leasing and renting. In these two figures, the company acquires the right to operate a fixed asset (vehicles, machinery, computer applications or others) on a rental basis, and the financing entity is the purchase owner. In the case of leasing, as a general rule, the company acquires the asset in the last financing instalment; in the case of renting, at the end of the contract, the company does not acquire the purchase but has the option of replacing it with a new one and extending the contract. In both cases, the asset serves the entity as a guarantee for the operation in the event of default, although it may coexist with additional deposits.
Monetary investments
Whether fixed-term deposits, current account balances, investment funds or listed shares, any form of money can be the object of additional guarantee for a financing entity in a credit operation, except pension plans. But be careful; on many occasions, it only makes sense to pledge these types of assets, whether they belong to the company or a third party because it supposes an extra financial cost that is often unnecessary but highly profitable for the entity. These cases require a deep analysis of the pros and cons.
Estate
Another very common guarantee is the mortgage, not only for the purchase of the property in question but to guarantee another type of financing, including working capital financing such as the discount of promissory notes, the line of credit or the international business line, any funding for companies it can be guaranteed with a property.
Contracts and collection rights
Over time, this guarantee is becoming more common; the future monetization of a contract with a client of the company, especially if it is a client with high solvency, also guarantees to finance. In the event of non-payment, the entity is awarded the charges derived from the contract. Something similar but different is what factoring entities do, adjudicate the collection rights on the invoices of a particular high-solvency client of the company.
As we said, any guarantee allows the company to obtain better financing conditions or, on occasion, access it, something that would not be possible without additional warranties to those of the company at certain rating levels. But before offering a guarantee, the company must carefully assess what is being played if things do not go as planned, it is much better to limit the guarantees to specific amounts or assets than to offer personal or company guarantees, which They respond with all their present and future assets.
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