Although not a novelty, the term microcredit in Brazil has been spreading for a few years and you have probably seen posters in banks offering it. The intention is that it will be a source of funds for microentrepreneurs to start or boost their businesses, with the advantage of offering better payment terms at lower interest rates.
Microcredit has the power to strengthen the economy, after all, smaller companies also generate jobs and income. In Brazil, both the government and the banks have discovered this strength of small businesses. Today, one of the main incentives for microentrepreneurs is precisely this source of fundraising. Here, this type of credit only became viable after 1994, with the economic stabilization.
What is the value and who can use microcredit?
The amounts granted by microcredit are low. The average loan is around $1500. But the limits vary and can reach up to $5,000. But do not get the impression that the taking of credit follows the same logic of the other modalities offered by the market. Microcredit has a clear purpose and follows specific rules. The objective is to stimulate business for low-income entrepreneurs (formal or informal). Money can serve both as starting capital for an enterprise and as working capital for investment.
How it works?
To meet all entrepreneurs who need the money, the criteria for granting credit are also more lenient. Unlike conventional lending practice, which involves prior approval, microcredit does not require the same bureaucratic procedures. This means that it is not necessary to provide real guarantees, such as proof of income, for example. This, on the other hand, does not mean that the bank does not carry out an assessment of the customer’s values and needs.
Another characteristic of microcredit is agility, which guarantees the transfer of funds in a less bureaucratic way. In addition, the transaction also has lower values, which facilitates the payment of installments.
Evaluation and guidance accompany microcredit
Precisely because it does not charge guarantees common to other types of loans, the bank needs other certifications, including to define what is the most appropriate amount to meet the expectations of the microentrepreneur.
When the loan is requested, the credit agents go to the place where the entrepreneur works, even if informally, to study the needs of the business and structure payment terms that are in line with the borrower’s possibilities. Often, the microentrepreneur is oriented to improve financial management and controls, following the development of the business. For this reason, it is worth structuring a Business Plan that can synthesize the characteristics of the company, prospects of billing and expenses, in addition to the operational model. This document will help both you and the loan officer to understand your company’s financial management.