RACO Investment Founder Randall Castillo Ortega Explains SME Finance Considerations

Globally, about 20.8% of small businesses have closed due to the COVID-19 pandemic. This reflects the importance of having financing plans to more effectively support the operations of small and medium enterprises in complex contexts like today’s. Randall Castillo Ortega, founder of SME finance company RACO Investment, explains what small and medium-sized businesses should consider when considering financial options.

Financing is the fuel that SMEs need to achieve their goals and objectives of expanding production, territorial expansion or simply day-to-day operations. Through it, they receive economic support to obtain all the necessary inputs such as raw materials, recruitment and payment of collaborators or suppliers, etc. However, there are a number of barriers for SMEs to access finance and, on top of that, there are some myths about the debts they generate, leading companies to adopt bad financial habits that even have tend to put them more in danger.

In this sense, it is common to classify all financing channels as credit or debt. This generalization is rarely analyzed and, given the lack of knowledge, it does not deepen the options that exist in the market, for each moment in which the company is located. According to some surveys, Castillo explains, 92% of the SMEs surveyed said they used finance to pay off their debts, reflecting the lack of well-formulated capital plans, affecting the liquidity of small and medium-sized businesses.

In view of this, establishing proper and well-formulated planning is essential to maintain healthy cash flow. While there are bad practices on the part of some SMEs in terms of dependence on finance, raising capital from sources of finance is not synonymous with something negative. Visualizing financing beyond an urgent short-term need will boost the financial health and growth plans of SMEs because, in addition to making them more competitive, it will work together to obtain more stable finances and contribute to their adaptability to the market. .

But it should be kept in mind that it is not only loans (which in themselves represent a liability and require a guarantee). There are other alternatives to financing that do not necessarily involve debt, such as factoring or financing via accounts receivable or raising funds via an investment round.

Thinking of financing as an ally rather than a last resort contributes to improved cash flow, better access to working capital and better preparedness of companies for any unforeseen eventuality. On the other hand, resources such as factoring not only ensure the liquidity and sustainability of the business in the short term, but also offer other competitive conditions for SMEs. For example, they may have access to better prices and discounts when purchasing inputs into a single show’s payments (since they receive up to 80% upfront on their invoices, they may affect this money to this type of operating expense), or focus on covering day-to-day expenses that help them grow and expand.

It should be noted that the acquisition of credits or financing must be planned. Always consider things like ability to pay, risk assessment, or finding the best alternatives to access capital for good financial management, Castillo says.

Leveraging loans and other capital injection resources is essential to meet a variety of short- and long-term needs. However, for them to be truly effective, they must be used strategically and not as the last survival alternative.

About RACO Investissement

RACO Investment is a financial investment company serving small and medium-sized businesses in Panama and Costa Rica. It was founded by Randall Castillo Ortega, an expert financial advisor who has his roots in the import and export industry in Latin America. The company has helped many startups find the financial support they need to get started, and has also provided bridging loans to help those looking to restructure or improve their operations.

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