High Borrowing Costs and Tax Changes Put Brazil’s Small Businesses Under Pressure

Brazil’s small businesses are facing tough times in 2025. The Central Bank has raised the main interest rate to 15%, the highest in almost 20 years.

This move is meant to slow down rising prices, but it also makes it much more expensive for companies to borrow money. Most small and medium-sized businesses in Brazil depend on bank loans to keep running.

With interest rates going up, these loans now cost more. Official data show that the average interest rate for business loans jumped from about 22% to over 24% in just one month.

Many companies are finding it harder to get the money they need to buy supplies, pay workers, or invest in new equipment. The Brazilian government also changed the tax on financial operations, known as IOF, in May 2025.

For most companies, the tax on taking out loans went up. Small businesses using the Simples Nacional tax system got a break for smaller loans, but the rules changed quickly and created confusion.

These tax changes were part of a plan to raise more money for the government, but they made it even harder for businesses to plan ahead. At the same time, the value of Brazil’s currency, the real, has dropped against the US dollar.

This means that anything imported, like machines or raw materials, now costs more. For businesses that rely on imports, this adds another layer of difficulty. Because of these problems, many business owners are being extra careful.

They are cutting down on the amount of products they keep in stock, focusing only on their best-selling items, and trying to renegotiate their debts. Some are holding off on new investments or hiring until things become more stable.

The impact is clear in the numbers. Official figures show that more companies are missing loan payments, with default rates rising to 3.2% in January 2025. Bankruptcies are also up by 60% compared to last year.

The government is trying to help by creating new types of loans that use digital payment records as collateral, but high borrowing costs and uncertainty remain big problems.

These challenges matter because small businesses are the backbone of Brazil’s economy. They provide most of the country’s jobs and keep local economies moving. If they struggle, it can lead to more unemployment and less growth for everyone.

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