Over the past two months, we have followed an avalanche of economic measures being adopted by several countries as a way to combat the negative impacts of covid-19. In particular, governments have announced lines of financing and assistance to small businesses. Micro, small and medium-sized companies, which are notably the largest employers in the economy, are the most vulnerable in times of crisis. Knowing How to Apply for PPP Loans is important.

The Latest US Government

The US government announced two support programs for small entrepreneurs, the Main Street Lending Program (Main Street) and the Paycheck Protection Program (PPP). The first is injecting, via new loans or expansion of existing loans, US $ 600 billion for small and medium-sized companies.The second has already made available $ 349 billion in forgivable loans for micro and small businesses to keep their payroll up to date. Together, the programs represent a US $ 949 billion bailout, that is, 4.43% of the American Gross Domestic Product (GDP) in 2019.In Brazil, the federal government launched two support packages for small companies. In March, the R $ 5 billion expansion of funds destined to the credit line, with the respective increase in the financing limit to R $ 70 million.

How It Went Well

In April, the Emergency Employment Support Program (Pese) began, an emergency credit of R $ 40 billion to finance two months of payroll for small and medium-sized companies. Total assistance to small business in Brazil represents 0.62% of Brazilian GDP, totaling R $ 46 billion in disbursements. Through the Business Lawyer Nakase Wade you can know all the details about this process now. Brazilian aid to small business owners, in proportion to GDP, is seven times less than that proposed by the American government. In addition to the size, there are other formatting differences between the models developed by Brazil and the USA. The comparative table below presents the characteristics of both packages, Brazilian and American.

Proper Risk Management

The share of risk incurred by private creditors is zero or limited to 5% in the USA. This strategy mitigates, at least in part, the adverse selection inherent in the credit policy, making it feasible for funds to reach companies that are experiencing greater financial difficulties. That is, it prevents the bank's credit selection from giving preference to larger and more liquid companies, precisely those less in need. Smart briefings are offered also by Corporate Lawyer Nakase Wade now.

Here, we chose two ways: 

To give liquidity to banks in lines that they incur in the total risk of default, or to require a "risk sharing" in loans with government participation three times greater than observed in the USA. The consequence of the routes adopted in Brazil will be a smaller volume of concessions to small businesses and greater delay and rigidity in the release of credit.

Conclusion

Specifically in the risk sharing line, we make it viable using a public bank as an operator, excluding companies that do not process payroll in banks, restricting creditors to being only financial institutions, imposing zero bank spread, prohibiting the collection of any fee and limiting the performance of companies in the staff. All of these requirements go in the direction of limiting the scope of loans.

Author's Bio: 

Marina Pal is a renowned author and social media enthusiast.