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Find out everything about Hot Money, a high-cost business loan with immediate release to cover financial shortfalls in emergency situations.
Did your company's finances not go as planned and now you have numerous obligations to pay that cannot be postponed?
Don't worry, because with good financial products you can reverse this situation, pay your business debts and even inject working capital in just a few moments.
We have put together a guide in this content with all the information about what Hot Money is – a business credit that is available quickly, without bureaucracy and with a very short payment term. Want to know more? Then continue reading and learn all about:
- What is Hot Money?
- How does very short-term credit work?
- Advantages and disadvantages of borrowing
- Advantages
- Disadvantages
- How to calculate Hot Money
- Examples of Hot Money.
- Escrow Account vs Hot Money
- Is Hot Money a very short-term operation?
- Hot Money Options
- Bradesco
- Itau
- Santander
- When to use?
- How to hire?
- Conclusion
What is Hot Money?
If you are looking for financial solutions for your company, this credit can be an excellent alternative. But first you need to know what Hot Money is, to use it assertively and avoid financial mismanagement, right?
In short, Hot Money is a type of very short-term business loan with payment between 1 and 29 days maximum. Through the credit line, the entrepreneur can quickly inject money into the cash register to cover immediate expenses.
How does very short-term credit work?
In literal translation, the term “Hot Money” means “hot money” and that is exactly how the procedure works. The loan usually has a very high amount, easy access and one short period of time to make the refund.
The resources are used in the company without the need for justification, however it is advisable to use them only in emergency situations such as: payment of urgent bills, cash flow or working capital.
As we mentioned in the previous topic, the payment period is very short and the entrepreneur has the minimum 1 day and maximum 29 days to refund the amounts with the interest involved in the contract.
Among the loan features, it is also important to mention the interest rate. After all, they tend to be quite high and the charge is based on the bank's CDI (Direct Interbank Credit), plus PIS and COFINS on the billing rate.
It is also worth highlighting the need for guarantees, as some banking institutions require them to release credit. Typically, the most common are promissory notes, bank credit notes, mortgages, pledges and deposits.
Advantages and disadvantages of borrowing
Before deciding whether or not to apply for Hot Money, it is important to understand the advantages and disadvantages of credit. Let's find out what they are.
Advantages
Fast money: One of the main advantages is the name itself, as the credit is provided quickly, without bureaucracy.
Quick resolution for possible Treasury problems: With Hot Money you can solve any treasury problems and you don't need to stop an operation due to lack of money.
High value: Generally, the amounts released upon contracting are quite high, which means that the credit is ideal for covering high-cost emergencies, as long as the term does not exceed 29 days.
Pre-approved limit: In most business accounts, the customer already has a pre-approved credit limit. Therefore, signing up is a simple procedure that takes no more than 5 minutes.
Disadvantages
High interest: One of the main disadvantages of credit is the interest rates charged. The rates are usually quite high, since the calculation involves the bank's CDI, with the value of PIS and Confins added to the billing rate.
Extremely short term: While on the one hand there is extreme ease in obtaining credit, on the other hand the payment terms are very short, considering that the customer has up to 29 days to pay off the debt.
Warranty needs: Depending on the financial institution and the amount requested in the business loan, the entrepreneur needs to have payment guarantees, such as promissory notes, invoices, among others.
High risk: This type of loan is a high-risk transaction, as if the customer is unable to pay the debt within the stipulated period, the financial loss will result in high costs.
How to calculate Hot Money?
The loan calculation is performed using the rates negotiated within the credit agreement. For example: let's assume that you took out a Hot Money of R$500,000.00 to cover the company's cash flow and you will make the payment in 3 days, with an interest rate of R$2.351 per month.
In this case, to calculate the value of the debt we use the following formula: total amount payable = loan amount x (1+ interest rate x [term/30]. So, based on our formula, we will have the following data:
Total amount payable = 500,000 x (1 + 0.235 [3/30])
VT= 500,000 x (1+0.235 [0.1]) – we solve the bracket formulation first
VT = 5000,000 x (1.235 x 0.1) – so we will have the following values:
VT = 500,000 x 0.1235
VT = 61,750
Therefore, considering the hypothesis that the loan amount to be paid to the bank is R$$61,750.00 and the final amount will depend exactly on the rates charged and terms. But in general, the formula and method most used to get an idea of the interest on the debt is this.
Examples of Hot Money
One of the most common examples of Hot Money is for use in working capital, when some kind of “default” occurs. Because, with the quick money, the businessman can cover an unforeseen event immediately.
But in addition to this, there are other forms of business loans that can be used for the same purpose. As is the case, for example, with secured account and the credit card for CNPJ.
Before applying for any line of credit, first assess your business needs, as the limit on your escrow account or card may not cover your outstanding expenses. Or, your company may not be able to repay the loan amount plus interest within 29 days.
Among such financial solutions, we must also consider the hypothesis of anticipation of receivables and the overdraft limit. For this reason, it is important to have a good knowledge of the financial products available for your company, in addition to having a business checking account available for your CNPJ.
Escrow Account vs Hot Money
When it comes to business loans, many tend to confuse the secured account with Hot Money and this is quite common. After all, both credits are intended for working capital, however there is a big difference between the modalities.
In short, the secured account it is a pre-approved credit limit available on business account. Where the entrepreneur has “extra money” to use in emergencies. In addition, the credit application is subject to some fees such as CDI, a pre-fixed interest rate, IOF and Payment terms are short term and can be up to 12 months.
In turn, Hot Money is also money released by companies very quickly, and when the entrepreneur already has a pre-approved limit at the bank, the process is practically automatic. The difference lies in the way interest rates are charged and the payment term. In fact, the period for the restitution of a very short period of time with only 29 days.
Therefore, we can say that the guaranteed account works as a means to cover a company's working capital for a longer period of 3 to 12 months. Hot Money, as the name suggests, is for quick money that will be quickly replenished in the cash register and the payment is made in a single installment within 29 days. Did you understand the difference?
Is Hot Money a very short-term operation?
Yes! Hot Money is a very short-term business loan. Just as the amount is released quickly and without bureaucracy into the customer's account, the refund period follows the same pace. As we mentioned earlier in the article, the maximum time for payment is 29 days.
Hot Money Options
To make your purchase easier, our team has put together a list of 3 options available from the largest banks in Brazil:
Bradesco
Bradesco loans usually have exclusive rates according to the customer's profile and guarantee. Like other Hot Money contracts, the interest rate is based on the CDI. However, the credit is only available to Bradesco account holders. Bradesco Companies and Business. To request, simply send a proposal through the app on your cell phone or Internet Banking.
Itau
At Itaú, this credit operation is known as “Immediate Credit” with a pre-fixed interest rate and a simple interest rate. The loan amount is paid in a single installment and the corresponding charges are also charged: hiring fee, interest and IOF.
The institution works with two available types: Hot Money and Automatic Hot Money (a pre-approved limit on the account, available only to companies with a turnover of less than R$$6 MILLION per year).
The credit is only available to corporate account holders of Banco Itaú and the contracting is done through Internet Business, an Internet Banking page exclusively for business accounts. Another way to apply for the loan is with the account relationship manager directly at a branch.
Santander
At Santander, the very short-term loan available to small and medium-sized companies is Santander Master, a perfect solution to cover emergency interest and with one of the lowest interest rates on the market. After all, There are some circumstances where the customer does not pay interest: the first is using the CNPJ as PIX and the second is activating the limit and making the payment on the same day.
Let's say, for example, that this morning your cashier needs a certain amount for an unforeseen event and you take out a loan. That same day, the sales amount exceeded your expectations and at the end of the day the company already has the balance to pay it off. In this case, interest rates are not charged.
Another facility is also in the reduced interest rates for customers with investments, the product is known as an “investor check” and makes the company’s day-to-day operations much easier.
THE Santander Hot Money It is only available to customers with a business account at the bank. However, it is not possible to apply for credit via cell phone or Internet Banking. At this bank, you must go to a relationship manager at a physical branch.
When to use?
While Hot Money provides immediate relief for emergencies in a company, on the other hand, the interest rates are very high and the repayment period is extremely short. This means that the use of credit is only recommended in certain circumstances, such as financial obligations that cannot be ignored.
These obligations are included in the company's Balance Sheet and are part of the "Liabilities". Therefore, the use of credit is only intended for cases when the company does not have the financial resources in its cash flow to cover these costs, such as:
- Suppliers;
- Financing;
- Tax obligations;
- Social obligations and other bills to pay that cannot be postponed.
Another situation for using Hot Money is in insertion of credit into working capital. But in this case, evaluate whether this option is really interesting for your business and whether you will have the necessary amount on the expected date. In other words, analyze your company's financial situation in detail, mainly in relation to accounts receivable.
How to hire?
Taking out a loan is easy, there is no bureaucracy and in just a few moments the customer has a high amount automatically available in their account. However, it is necessary to be business client from a bank.
Therefore, the first step is to look for the institution where your company has a checking account and check the hiring process. Each bank has different policies, as some allow access easily through Internet Banking, while others only allow it at a physical branch.
Now if you don't have a business account, the first step is join your account. Generally, large banks such as Santander, Bradesco and Itaú provide more advantageous services to small and medium-sized companies, well beyond Hot Money.
Conclusion
Well, now that you know everything about what Hot Money is and how this peculiar short-term credit works, you have enough knowledge to decide whether to take out the loan or not.
As we have seen, credit is intended only for emergency situations, that is, those obligations to be paid with no chance of postponement and most loans are available with a pre-approved limit.
For this reason, it is important to carefully evaluate the company where you are going to open your legal account and see What benefits are available to help your business? in times of difficulty.
A good legal account and knowledge about business loans for working capital are essential to get a little help when in a tight spot. Did you like this content? Now, take the opportunity to check out everything about the types of working capital loans for small and medium-sized companies. Click the button below and find out more!
