Why does it matter to invest in Small and Medium Enterprises (SMEs)?

There is no economic recovery without a proper level of employment — and meaningful jobs. That’s why we received with enthusiasm — and some degree of optimism — the announcement of a new credit line oriented to Micro and Small companies made by the Brazilian Development Bank — Banco Nacional de Desenvolvimento Econômico e Social (BNDES) — on March 22nd.

Since the beginning of this year, BNDES is under a new leadership with Joaquim Levy — a prominent Brazilian economist, former Managing Director and World Bank Group Chief Financial Officer — who has been showing signals in a shift of the bank’s credit policy. While this institution used to better support Large companies in the past, Small and Medium businesses are the goal now. According to Levy, this new guideline is not only for this public office to work as a development bank (as BNDES is nowadays), but also perform a strategic role in the nation’s economic recovery. He announced that “(this new credit line), we will give more competitiveness to the segment that generates the most employment in the country, which is exactly what Brazil needs”.

Additionally, Levy presented in his first speech running BNDES that “There is no strong free market initiative which does not present solid medium companies”.

This attitude makes perfect sense. We, Solum, have always believed in the vital role of entrepreneurs and in the great potential of Micro, Small and Medium Enterprises (MSMEs) as the country’s economic growth engine. Companies with smaller size are responsible for 50% of all employment in the private sector — and according to SEBRAE (Brazilian agency responsible to monitor this segment), it accounts for more than 80% during certain period.

However, these kinds of businesses have always exhibited the highest challenges in accessing credit. Besides the current scenario of slow economic growth, banks are apprehensive to lend, and high level of indebtedness on Large companies demonstrate further additional difficulties for SMEs to access finance solutions. For these reasons, increased the urgency to support the segment.

According to BNDES, R$ 1 billion is the estimated demand for the first round offered on this new credit line, with monthly interest rates up to 1,45% and 60 months of maturity. “We are not investing in large companies in order to save more resources for this kind of segment”, said Levy.

This fact is a great encouragement, and reinforce our view on business decision making. Solum, a venture capital firm, looks for companies exactly with this profile of high growth potential and employment generation to allocate capital. Nowadays, we have a team with complementary skills to find those companies and, as qualified minority shareholder, supporting them to grow and reach the next level. Our differential is to take care of each business investment opportunity — without looking only for companies in the “new economy” or that born digital. We look for tireless entrepreneurs, talents with their full potential that can be in different kinds of businesses, solving real problems in society.