TozziniFreire behind CoVida20 SME financing programme
Brazilian Latin Lawyer Elite firm TozziniFreire Advogados has worked pro bono to help Sistema B, a global network for B companies, structure a lending programme that will offer loans to small and medium-sized enterprises (SMEs) during the covid-19 pandemic.
The programme – CoVida20 – is the first of its kind in Brazil, and will offer loans with lower interest rates and extended terms and grace periods for SMEs struggling to stay afloat during the pandemic. The aim of the programme is primarily to lend to SMEs with a commitment to environmental and social sustainability. Sistema B joined with fintech Trê, venture capital fund Din4mo and ethical business thinktank Capitalismo Consciente to create the fund. The programme launched on 28 April.
Brazilian businesses have been affected by investor uncertainty around the handling of the pandemic, and while the Brazilian Central Bank has implemented measures to help the economy, there are concerns that this is not enough to help those struggling – particularly SMEs. The programme was put together as a financing alternative for businesses. “The Central Bank has done a lot to help lending and refinancing households and corporates,” says TozziniFreire partner Alexei Bonamin, who worked on the deal. “But are the measures enough? They are taking too much time to reach and benefit those worst affected by the covid-19 pandemic effects, such as SMEs.”
TozziniFreire helped Sistema B to raise capital for the initiative, which is expected to take place in four rounds. The first round of funding is projected to raise 15 million reais (US$2.6 million) from investors.
CoVida20 will be open to companies with up to 10 million reais (US$1.8 million) in annual revenue. Businesses on the lower end of the spectrum with annual revenue between 360,000 reais (US$64,317) and 5 million reais (US$892,635) will be given priority for loans. Loans will have a maximum term of five years, a grace period of up one year, and an interest rate of up to 0.5% per month.
The lending transactions will be carried out through an online platform developed by fintech Mova, which has been granted authorisation by the Central Bank of Brazil to use electronic platforms to match creditors and borrowers – also known as peer-to-peer lending. Trê will provide banking services to Mova by offering loan or credit proposals that will be granted under the CoVida20 programme.
According to a survey conducted by the Brazilian Service of Support for Micro and Small Enterprises (SEBRAE), the covid-19 pandemic has affected around 5.3 million small businesses in Brazil, equal to around 30% of the country’s SMEs. Nearly 59% of that figure have temporarily closed their operations. “CoVida20 will help struggling SMEs to maintain employment and their income during the pandemic,” says Bonamin.
Central banks across Latin America have braced for the economic impact of covid-19 by implementing measures such as lower interest rates, cheaper loans and extending tax payments to increase market liquidity and help keep economies going. Brazilian efforts have focused on loosening regulations on how much capital banks must have in reserve to lend more money to SMEs.
Counsel to Sistema B
Partner Alexei Bonamin and associates Marcus Fonseca and Natasha Wiedmann