Riding the SME financing wave in Chile

A Chilean financial services company is executing a strategy to tap the country’s growing SME market.

Nuevo Capital was born six years ago as a factoring firm but today also operates in the insurance broking and auto financing arenas, among others, and is preparing to the enter the mortgage market next quarter.

Conditions are favorable for factoring companies in Chile as, over the past several decades, banks have shifted their focus away from business lending and onto consumers.

“Companies are increasingly securing less financing via the banks … the SME market [as a result] is tremendous,” said Rodrigo Gazitúa, Nuevo Capital CEO. “It’s going to continue growing and [financing] will also be necessary. Here, in Peru, in Colombia, Bolivia, in any part.”

A reform bill in Chile’s congress contains measures to permit more SMEs to benefit from a special tax regime – a move designed to spur the sector.

In terms of growth, Nuevo Capital is preparing to open a renting and factoring business in Peru within the next 60 days or so – and also has Colombia in its crosshairs. In the factoring segment alone, Nuevo Capital provided US$700mn in financing last year.

SME-focused Chilean crowdlending platform Cumplo is also planning an incursion into Peru and expects to be up and running in the country by the end of 1Q20.

The Chilean mortgage segment “is also attractive,” said Gazitúa. Consumer lending has been growing in Chile, particularly in the mortgage segment, supported by record-low interest rates and a wide offering, supported by banks and nonbank financial institutions. And strong economic growth last year supported 16% growth in car sales to a record 417,038.

FINTECH INCURSION

In Latin America there is an estimated US$903bn SME financing gap. This is a rich seam to mine for companies which can offer SMEs more competitive rates and repayment terms than incumbent lenders.

Gazitúa said Nuevo Capital enjoys a competitive edge as it has the risk-management experience, technology, systems and contacts to purchase an invoice within eight days of it being issued – the period a buyer has to approve or reject it. Following the eight days, if not disputed, an invoice is considered an official instrument. Nuevo Capital operates an associated agile technological solution with fintech features called Nuevo Capital Pro.

Fintechs enter the market after this period has expired, Gazitúa said.

“The business of factoring is about buying it within eight days," Gazitúa said. "In our business it is about buying it on day one. In terms of the risk of buying an invoice within the eight days, nobody is more familiar with this than companies like us. There are few people who know how to do it.”