Spotlight: Getting financing to Chile’s embattled SMEs

Amid the turbulence that has rocked Chile, both the public and private sectors are working to support the country’s embattled SME sector.

In Chile – as in the rest of Latin America – these enterprises are a vital part of the economy, accounting for 20% of the nation's GDP, according to Chilean government data.

But for almost two months now, SMEs have been impacted by fallout from protests. Looting and arson, along with slow trade and reduced operating hours, have weighed heavily on the sector. In parallel, the wider economy has contracted, with economic activity in October - when the protests and violence started - shrinking 3.4% year-on-year.

More than 14,800 small enterprises have been affected, of which over 9,200 have suffered property damage, economy minister Lucas Palacios said, citing data from a special registry established for affected SMEs.  

NUEVO CAPITAL

Among those in the private sector that have implemented measures to support SME clients is factoring-focused financial services company Nuevo Capital.

“We’re a financial entity with a special focus on SMEs, and we have a presence across the country,” Jorge Bravo, manager of Nuevo Capital’s factoring division, told BNamericas.

“For that reason, when the social unrest started, and analyzing a possible scenario in which our clients would not be able to issue invoices for various reasons, we decided to support them by offering a financing system based on bridge loans, a measure that helped them meet their more immediate financial obligations, such as payment of salaries.”

Founded six years ago, Santiago-headquartered Nuevo Capital provided US$700mn in financing last year. The company also operates in the insurance brokering and auto financing markets, among others.

Bravo said the bridge loan move has brought it closer to its clients.

“As of now, 80% of these loans have already been paid back on time, and some have even been paid back early. This has helped us to strengthen the link with our clients, who have expressed gratitude for the support provided in a difficult scenario for their ventures and businesses.”

Some of the country’s alternative finance players have also highlighted their role in supporting local businessmen and businesswomen.

CUMPLO

Among them is SME-focused crowdlending platform Cumplo, which said that approximately 25% of SMEs experience problems accessing financing in Chile.

In a statement, the Santiago-headquartered company said, following the start of the unrest, it had “stood out by holding rates steady and playing a key role.”

“The collaborative financing model brings together, thanks to technology, SMEs with investors,” said Oliver Vega, Chile country manager at Cumplo. “It's the latter who provide financing at a fair rate so that, in this way, they [SMEs] can have the necessary capital to continue operating.”

MIPLUSVALÍA

Another player in the non-traditional financing market is MiPlusvalía. The company offers a product that allows a borrower to remortgage 10-20% of a property for a term of up to five years. Over the period the borrower pays no monthly installment or interest. At the end of the term, the person must return the principal in full along with a percentage of any increase in the value of the property registered over the period.

Based in the Chilean capital, MiPlusvalía said 65% of its clients are independent workers or SME owners, adding that they have been the “hardest hit in these times of instability.”

REDCAPITAL

Meanwhile, against the backdrop of unrest, another SME-focused alternative finance player, RedCapital, said it had started to serve the micro-enterprise segment. Also based in Santiago, RedCapital said it now offers an incentive-based program, which allows micro-enterprises who fulfill their repayment obligations on time to access larger amounts.

PUBLIC SECTOR

The government has taken action on various fronts to support the SME sector and, in turn, help keep people in employment and spur a flagging economy.

Last month congress approved injecting the equivalent of US$500mn into state-run BancoEstado to support lending to SMEs via new loans and refinancing. 

In a related move, the economy ministry said it would issue more than 7,000 subsidies to impacted SMEs as part of an ongoing support initiative. The subsidies will range from 500,000 pesos to 4mn pesos (US$642 - US$5,137), with the average 1.9mn pesos. 

The cost of the support initiative is 14.2bn pesos.

Authorities have also announced tax relief and debt advisory measures, among others. 

Picture credit: Claudio Reyes / AFP