The Brazilian government recently announced the Provisional Measure 972, which released $3M (R$15.9B) to support the Pronampe (National Support Program for Micro and Small Enterprises).
Through Pronampe, a company can borrow up to 30% of its 2019 gross revenue, with a limit of $33.7K (R$180K) for micro-companies reporting an annual turnover of up to $67K (R$360K). Small companies with an annual turnover of up to $900K (R$4.8M) will be able to borrow up to $262K (R$1.4M).
MSEs (micro and small enterprises) welcomed this initiative, which in fact brought hope to entrepreneurs who, pressured by the COVID-19 crisis, urgently need credit to fulfill their obligations and maintain cash flow. It’s one of the most positive measures adopted so far, with the government acting as a guarantor of up to 85% of the debt.
However, although positive, the measure has obstacles that can prevent this credit from reaching those who really need it and further complicate the situation of small entrepreneurs.
The Obstacles
First, the methodology adopted for credit approval – based on the company’s balance sheet and credit analysis – has problems. It means that the ability to pay the neighborhood grocery has been evaluated by the same criteria as the credit for corporations such as Petrobras or Vale. This orthodox methodology is neither fair nor applicable to small businesses.
Another obstacle is the 36-month period for the payment of loans. A micro or small company is not usually prepared nor has financial education to assume such long terms, leading to a more complicated situation. With a shorter term of six months, for example, an entrepreneur would be better prepared to plan the debt payment.
The Alternatives
But criticizing without offering alternatives is not a good idea. Apparently, the most logical solution necessarily involves expanding the channels used by Pronampe to grant loans, which would increase the level of capillarity. Today, Pronampe uses the traditional system, that is, the four large banks – Banco do Brasil, Caixa, Itaú, and Bradesco – which historically are not popular among MSEs, as this segment is mainly served by fintech, factoring, securitization, and direct credit companies.
These alternative channels provide MSEs with access to private credit and, likewise, could facilitate access to public credit as well. Some fintechs, for example, connect entrepreneurs and financial institutions through a 100% digital platform, without bureaucracy and a centralized registration, offering broader capillarity and more agility.
The idea is to increase capillarity, release smaller amounts without bureaucracy, use shorter payment terms, and support the management of the company so that the money is well spent.
In fact, a digital platform was also the channel chosen by Estímulo 2020, a very interesting initiative through which citizens, entrepreneurs, executives, and third sector organizations can support micro and small companies during the COVID-19 crisis. The idea is to raise private funds and offer fast and cheap credit to MSEs without access to the banking system. Instead of an orthodox analysis, the loan utilization is monitored, which, in the end, acts as first-rate business consultancy.
The idea is to increase capillarity, release smaller amounts without bureaucracy, use shorter payment terms, and support the management of the company so that the money is well spent. That’s what the government could do with the funds from MP 972, in a joint effort to restart the economy. It would work much better.
Felipe Avelar is the CEO of Finplace, a platform that connects –at no cost– companies that need credit with financial institutions. He was the Vice President of Operations of the Credit Brasil Group for 10 years and has vast experience in the segment of credit for SMEs.