As our ancestor Heraclitus so aptly put it, the only constant is change. 

Just three years ago—amid the pandemic— we witnessed such striking images as an empty Times Square and oil prices dipping into negative territory. It was a harsh reality that radically changed many aspects of our lives, and today we continue to grapple with its profound consequences.

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

Faced with such a threat, our leaders generally chose to ensure their survival and protect these businesses at the cost of “temporary” high inflation.

Today, the reality is quite different: we have historically high interest rates, banks with restrictive policies, and growth projections that are weak, to say the least. Clearly, this is not fertile ground for the prosperity of small and medium-sized enterprises.

According to data from OECD member countries, 99% of companies are SMEs, they account for about 70% of the workforce, and they contribute about 50% of GDP. In Chile, the situation is different: SMEs account for just over 70% of all companies, 50% of the workforce, and contribute only 17% of 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 $5.2 trillion, which is 1.5 times the current supply of financing for these types of businesses.

Now, why don’t we focus on creating the optimal conditions for SMEs to grow? It seems like a long road ahead, but one that some developed economies have already taken. In Chile, according to data from the SII, SMEs are financed almost exclusively through factoring—that is, by advancing cash flows from their working capital. That said, they lack access to financing structured to meet their specific needs—financing that would allow them to invest in infrastructure, attract talent, digitize their operations, or even access external consulting services.

However, the government, through the FOGAPE program (Fund for Small and Medium-Sized Enterprises), provides sufficient tools to create more favorable conditions for SMEs, offering guarantees of up to 95% for loans through the banking system and some SGRs (Reciprocal Guarantee Societies). That said, as of August of this year, 852,519 applications have been submitted and 106,234 have been approved—that is, only 12%.

Let’s remember that it’s one thing to offer guarantees and quite another to provide loans. And the most curious thing of all is that these funds are being managed precisely by institutions that don’t typically finance SMEs: banks. 

Wouldn't it be better for non-bank institutions, such as private debt funds—which have historically financed SMEs—to do so with the backing of FOGAPE? That way, it would be possible to allocate the resources of all Chileans more effectively.

Andrés de Carcer

Senior Private Debt Portfolio Manager at Fynsa AGF