Economy Ministry to launch loan forgiveness program for small businesses

Economy Paulo Guedes. Photo: Isac Nóbrega/PR
Economy Paulo Guedes. Photo: Isac Nóbrega/PR

Economy Minister Paulo Guedes announced on Friday plans for a loan forgiveness program for small businesses. The program will revert tax revenues generated by small businesses in 2021 or the near future towards the forgiveness of federal loans incurred in 2020.   

The measure is aimed at softening the financial blow Brazilian businesses have been dealt with by the Covid-19 pandemic. Brazil’s GDP is set to drop by as much as 8 percent this year. Small businesses that rely on a regular flow of customers such as restaurants and physical shops have been hit especially hard and stand to benefit the most from the new program.

The general premise is that companies capable of generating tax revenue equal to or higher than their incurred federal loans in 2020 plus interest rates will be automatically forgiven from these loans. The benefits are twofold: small businesses will have enough capital to weather the economic storm of 2020 and the government will not lose an annual source of taxpaying revenue.

“If in one year, you’re capable of paying off all I lent you with interests, you’re forgiven. You’ll get a bonus [for good taxpaying records]. It is advantageous to save a business that pays [faithfully] annually,” Mr. Guedes said. “[The business] pays BRL 200,000 (USD 39,609) every year. Why not lend it BRL 200,000 when it is dying? I will lend you 200,000 and every year you will pay me BRL 200,000 [in taxes].”

Not business as usual

Despite attempts to kickstart the economy by reopening shops and non-essential businesses, customer flows are still expected to be lower than pre-pandemic levels as previously reported by The Brazilian Report. In São Paulo, Brazil’s largest city, social isolation rates have remained steady at 48 percent even with the reopening of shopping centers and street commerce this week.

This could signal a larger reliance on loans from small to medium businesses in 2020, as reopening might not generate the necessary revenue to stay afloat. 

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