As our ancestor Heraclitus said so well, the only constant is change. 

Just 3 years ago - in the context of the pandemic - we witnessed such impressive images as an empty Times Square and negative oil prices. we witnessed such striking images as an empty Times Square and negative oil prices. It was a harsh reality that radically changed many aspects of our lives, and we are still dealing with its profound consequences today.

However, we learned important lessons about the fragility of economies and above all how important and relevant SMEs (small and medium-sized enterprises) are to the world.. For years, their role was undervalued by authorities, governments and business leaders. The pandemic reminded us that they are a very important part of the engine of the economy; and that, without them, the machine grinds to a halt. I am referring to payment chains, jobs, wages, among so many other variables.

Faced with such a threat, our rulers generally chose to survive and protect these businesses at the cost of a "momentary" high inflation.

Today, the reality is different: we have historically high interest rates, banks with restrictive policies, and weak growth projections, to say the least. This is clearly not fertile ground for SMEs to prosper.

According to data from OECD countries, 99% of companies are SMEs, 99% of companies are SMEs, represent about 70% of the workforce, and contribute about 50% of GDP. In Chile, the reality is different: SMEs represent a little more than 70% of the total number of companies, 50% of the labor force and contribute only 17% of the GDP.

However, access to financing for these types of companies is often a global problem. According to World Bank data, SMEs have unmet financing needs of US$5.2 trillion, 1.5 times the current supply of financing for this type of company.

Now, why are we not concerned about creating the optimal conditions for SMEs to grow? Apparently, it is a long way to go, but some developed economies have already taken it. In Chile, according to SII data, SMEs are financed almost exclusively with Factoring, i.e., they advance cash flows from their working capital. That said, they do not have access to structured financing according to their needs, which would allow them to generate investments in infrastructure, attract talent, digitalize their business or even access external advisory services.

However, the State, through the FOGAPE program (Fund for Small and Medium through the FOGAPE program (Fund for Small and Medium-Sized Entrepreneurs) provides sufficient tools to make conditions more fertile for SMEs, granting guarantees of up to 95% for the granting of loans through the banking system and some SGR (Reciprocal Guarantee Societies). That said, up to August of this year, 852,519 applications have been submitted and 106,234 have been approved, i.e. only 12%.

Let us remember that it is one thing to offer guarantees and quite another to provide loans. And the most curious thing of all is that these resources are being managed precisely by entities that do not usually finance SMEs: banks. 

Would it not be better for non-banking institutions, such as private debt funds, which have historically financed SMEs, to do so on the backs of FOGAPE? In this way, it would be possible to allocate the resources of all Chileans more efficiently.

Andrew de Carcer

Senior Portfolio Manager Private Debt Fynsa AGF