More than 6 million Brazilian companies are in default, shows survey

Debts

Companies in the Services sector lead with 54% of them in debt, followed by companies in the commercial branch, with 37.1%

The Corporate Default Indicator, from Serasa Experian, pointed out that, in May, 6.5 million companies were in default in the country, totaling R$ 116.2 billion in debt. According to the survey, on average, companies had, at the time, seven overdue commitments. As in previous months, companies in the Services sector lead the survey, with 54% of them in debt, followed by companies in the commercial sector, with 37.1%.

The survey showed that 89% of defaulting businesses are micro, small and medium-sized companies, which add up to 58 million businesses with debts. Another survey, carried out by the Brazilian Micro and Small Business Support Service (Sebrae) together with the Brazilian Institute of Geography and Statistics (IBGE), points out that 24% of micro and small businesses are in default.

A national survey by the Micro and Small Industry Union of the State of São Paulo (Simpi) released in May finally showed that 76% of entrepreneurs attribute the indebtedness of their businesses to high interest rates. The Selic rate has been fixed since August last year at 13.75%. The amount is the highest since 2016.

“Historically, Brazil has high interest rates, which makes credit more expensive and makes it difficult to pay debts”,

explains the lawyer specialized in banking law Tallisson Souza.

The rise in interest rates directly affects companies that resort to loans and financing to purchase goods and services.

According to Souza, small businessmen in the country are the most vulnerable, as they do not have large investments, do not have a capital reserve, and often depend exclusively on the local population, which has difficulties in establishing competitive prices in the face of competition.

The lawyer explains that businessmen usually resort to loans to meet the company’s daily needs when basic expenses already consume a significant portion of the income obtained. The indebtedness of small businesses in Brazil, in this sense, can be attributed to several causes, such as the lack of financial education, the absence of an emergency reserve and financial mismanagement, as well as the recurrence of successive loans.

“Most small entrepreneurs resort to loans in the face of difficulties encountered in managing the business”, says Souza, who explains that this is a common measure among entrepreneurs of this business category in the sense of trying to remedy financial crises, which often causes a “snowball”,

resulting in debt.

Indeed, the average rate practiced by credit card operators, when paid in installments, rose from 6.72% per month, in June 2020, to 9.61%, currently. In revolving credit, when the minimum amount of the invoice is paid, the rate increased from 11.97% to 15.22%

Financial planning

Souza points out that even before asking for a loan, the entrepreneur must structure a solid plan, both about how the money will be used and how the credit will be repaid. “A well-planned repayment strategy can help you avoid accumulating unnecessary debt.”

The company’s cash flow must be closely monitored, he explains, so that it is possible to quickly identify any problems that may arise with the payment of debts. It is also important to consider, however, having an emergency fund to deal with times of crisis.

*With information from Estadão

Read more:

Registration open for high performance training for entrepreneurs in Manaus

Homemade sausage company in Parintins plans expansion in the Brazilian market

Volkswagen and Mercedes-Benz factories announce suspension of workers