RIO DE JANEIRO, BRAZIL – The new legal entity model of simple business lending companies, called ESC, a sort of local microfinance company authorized by law, enables owners of micro and small businesses to access credit with lower interest rates and less red tape. The data are from the Brazilian Micro and Small Business Support Service (SEBRAE).
According to the Joint Parliamentary Front of Micro and Small Enterprises, the new model should inject about R$20 billion (US$5 billion) per year into small businesses and the country’s economy.
The balance submitted by SEBRAE shows that only two states still do not have this new business model: Acre and Rondônia.
São Paulo, where the first company of this kind was established, leads the ranking with 121 ESCs in operation. Paraná comes in second place (28), followed by Minas Gerais (26), Santa Catarina (25), and Rio Grande do Sul (23).
The balance shows that the total capital of all ESCs in Brazil is R$168 million, the lowest having R$4 thousand and the highest R$10 million.
According to the survey, the most common investment in this type of local financing is R$100,000. SEBRAE expects the number of companies to reach 300 by the end of 2019. The goal is to total one thousand companies by 2020.
“Just like the introduction of the Individual Micro Entrepreneur (MEI) and the federal Simple Tax Regime, the Simple Loan Company was one of the great achievements for small businesses, which now have easier access to credit, without the red tape of financial institutions and high-interest rates,” said the president of SEBRAE, Carlos Melles.
According to the Ministry of Economy, individuals may open an ESC in their cities and lend money to small businesses, such as hairdressers, markets and bakeries. There is no minimum capital requirement for starting the company, but the maximum annual gross revenue allowed is R$4.8 million, with no charges or tariffs.
According to a survey conducted by SEBRAE in 2018, only 14 percent of small businesses took out new loans in traditional banks. The survey further showed that 61 percent consider the service to be bad or very bad, the worst evaluation of the past six years. The main difficulty for 47 percent of respondents is a very high interest rate.