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CREDIT RISK ANALYSIS FOR SMALL AND MEDIUM ENTERPRISES


ANÁLISE DE RISCO DE CRÉDITO PARA PEQUENAS E MÉDIAS EMPRESAS

Julius Goldfarb – Senior Partner at DMS PARTNERS


View of Financial Institutions


Credit analysis is important for companies because it helps assess a company's ability to honor its commitments, settle debts and anticipate risks that could lead to default. Credit analysis also makes it possible to establish the conditions most suited to each client's profile, such as interest rates, terms and limits. Furthermore, it helps to ensure the financial stability of the business and keep accounts organized.


Based on the credit analysis of legal entity clients, Financial Institutions establish credit limits and constitute the instruments for formalizing negotiation, aiming to ensure a good relationship between the parties.


Risk analysis is a process that involves evaluating the fundamentals related to a company's operational and financial cycle, which includes everything from cash flow management to the allocation of resources in investments.


There are several types of financial risks, such as credit risk, which occurs when the borrowing company does not settle its debt with the Institution, the risk of loss of liquidity and profitability, which implies the possibility of not achieving the expected return to the selling a good or asset, therefore, resulting in losses in the operation and negatively impacting the company's operational cycle.


It is essential that Company Management understands the analysis models for credit approval for legal entities, whether traditional credit, based on data or models. Each credit analysis model has its own objectives and volumes of resources involved:


Traditional credit analysis: This type of credit analysis is based on the customer's financial information and credit history. It is useful for assessing the customer's payment capacity and suitability.


Data-driven credit analysis: This type of credit analysis uses customer data such as purchasing history and payment behavior to assess the risk of default.


Model-based credit analysis: This type of credit analysis uses mathematical models to assess default risk. It is useful for evaluating large volumes of credit limits, known in the market as mass credit actions.


According to Data Sebrae in 2023, the proportion of defaulting companies in relation to the total of those that took credit has fluctuated between 3% and 4.5%. Default series tend to show seasonality, generally higher in the first four months and lower in the last four months of each year.


View of Companies that need to resort to credit in the market


Small and medium-sized businesses need credit to finance their operations, expand their business and invest in new opportunities. Lack of money is a common obstacle to opening a business and the search for solutions usually happens naturally. Before applying for a loan, it is important to understand what your business needs and raise the amount necessary for your goals.


To raise money in the financial market, it is important that the company is prepared to present a well-structured and detailed business plan. The business plan must contain information about the company, such as its mission, vision, objectives, strategies, products and services, target market, competition, team, finances and future projections. Furthermore, it is important that the company has a clear and effective marketing strategy to attract investors and customers.


To attract investments, it is important that the company has a well-managed cash flow and an updated financial control spreadsheet. This will help the company understand its financial needs and make informed decisions about how to use available resources.


Why hire DMS PARTNERS to assess your company's financial/operational capacity BEFORE going to market?


DMS PARTNERS is led by a group of professionals who have held executive roles with recognized success in national and/or global companies, of different sizes and segments.


Professionals who lead or work on projects have proven experience in conducting and managing business operations in various industries and functional areas.


Support management in an effective, agile, pragmatic and transformative way.


The contribution of our partners' professional experience in more than 60 market segments, fully experienced, especially in company leadership, allows us to help you plan and execute the best financial and operational strategies.


Plan and understand your reality. Be well prepared to maintain this simplified relationship between you and the bank and pay attention to what you need to know before placing an order.


There are several financial institutions and several loan options for you to analyze. Choose the one that will best solve your problems.


It is important to highlight, observing and

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