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Source: https://dcomercio.com.br
Understanding entrepreneurs' cycles facilitates access to credit for small businesses
Still seen by private banks through the lens of the high risk they offer, micro and small companies are demanding new public financing options
Two years on from the start of the pandemic, it can be said that the shock suffered by Brazilian companies has been heterogeneous, hitting micro and small businesses the hardest, most of which lack management processes and a cash structure capable of withstanding a long period without turnover.
Even among them, the crisis was different. Over time, the situation was more serious for the services and clothing sectors, and less critical for supermarkets and building materials stores, for example. On the other hand, the results were positive in the furniture and household appliances segments.
But in general, smaller companies have gone through the most acute phase of the period in a similar way and are coming to what seems to be the final stretch of the pandemic with an insufficient volume of resources to meet the needs and speed of the recovery.
The timing of the upturn is critical due to the need for investment and working capital. On the one hand, in the formation of inventories, including to guarantee inputs and neutralize the effects of the breakdown of global supply chains. On the other, due to the need for more financing from customers.
With the consequent increase in the appetite for capital, micro and small business owners find themselves in a "perfect storm" scenario in the search for credit, thanks to the pressure imposed by high inflation and interest rates.
Most entrepreneurs are accustomed to neglecting cash flow planning and borrowing funds on an emergency basis, usually through short-term credit lines, and are faced with expensive options, high rates and an aggravating factor: aimed at an immediate purpose, which excludes consumption and investment, these credit lines are incapable of generating any kind of wealth, resulting in future problems for both the lender and the borrower.
The difficulty of accessing credit is also exacerbated by the lack of guarantees that micro and small businesses can offer. This obstacle has recently begun to be corrected by the Positive registration. But it still takes time for the Positive Registry to be understood as a real credit tool by individuals and companies, who are still getting used to building their histories and understanding the importance of taking and honoring credit.
The high levels of informality, which make it difficult to prove turnover and result in balance sheets that don't reflect reality, add to the challenges faced by small businesses when looking for credit and make access to it difficult or expensive.
An effective solution for entrepreneurs to have access to better borrowing conditions is to create credit line options that understand the cycles of small businesses. Applying the average to each and every borrower creates an asymmetry of conditions. For example, what's the point of providing capital with a 90-day grace period for a company that will only start receiving payment for its services and will have funds in a year's time? This model only leads to default.
In addition, it is essential to segment needs according to business sectors, since industry, commerce and services have different requirements.
Still seen by private banks through the lens of the high risk they offer, micro and small companies are demanding new public financing options similar to the timely National Support Program for Micro and Small Companies (PRONAMPE), from the federal government. These options must be able to provide resources and create the necessary tools for credit lines for small businesses to reach the top, generate results and become attractive to private financial institutions as well.
Micro and small businesses deserve to stop being seen as a risk, not least because they have historically been the most responsible for creating jobs in the country in recent years. And the salaries paid by these companies help develop the consumer market, stimulate credit and help move the wheels of the economy.
IMAGE: Freepik
