The base rate of the Brazilian economy, Selic, has been penalized in recent months and has raised concerns for small businesses. The Central Bank’s Monetary Policy Committee (Copom) finished 2021 at a rate of 9.25% per year, but rose to 10.75% in February, and on March 16 it reached 11.75%.
Market expectations are for the index to reach 12.5% in May and to rise to 12.75% at the end of the semester. This is bad news for everyone, because Selic is the central bank’s main monetary policy tool to control inflation. If it goes up, all prices will go up with it. And of course, this affects the success of a small business.
According to Sebrae Capital and Financial Services Analyst Giovanni Beviláqua, Selic’s divergence tends to raise interest rates on lines of credit for small businesses, as well as reduce financial market interest in new financing for this sector.
“The increase in the Selic rate has a direct impact on the credit rates of companies, which are already much higher than those offered to large companies. Added to this is the reduced willingness of the financial market to provide credit to small and micro companies. With a high percentage of Selic, financial institutions will not need to take on greater risks by lending to companies, especially smaller ones, which are riskier, in the sense of potential default,” he assesses.
A Sebrae survey analyzed that in March 2021, the average interest rate on credit operations for small businesses was 26.5% annually, while Selic was at 2%. In December 2021, according to the Central Bank, the average small business rate was 31.1% annually (4.6 percentage points more than in March, while Selic’s rate was already at 9.25%.
In other words, while the Selic rate rose by 7.25 percentage points, the average interest rate for small businesses increased by 4.6 percentage points, indicating an imbalance of power against entrepreneurs in this time of crisis.
Small Business: Beware Debt After Selic Increases
Sebra recommends that entrepreneurs be more careful in financial management. “It’s time to put the accounts at the front of the pencil, knowing well their cost structure and cash flow so they can make the best business decisions and decide where they can work to balance their finances, especially if there is a real need for external resources, such as bank credit,” he suggests. Bivilacqua.
Companies that received credit through the National Support Program for Small and Micro Business (Pronampe) in 2020 and 2021 should pay attention. After all, the interest rates for the program are subsequently determined at the Selic rate. “The loan installments will soon become larger and even those that may remain in the grace period will have their debt balances readjusted to higher standards,” he says.
The Pronampe line offered interest at 1.25% per annum, plus a Selic rate. Subsequently, it began charging 6% extra for selecs, and the latter went from 2% to 11.75% in one year.
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