this is how SMEs prefer to finance themselves

Financing of SMEs via electronic check discount (Echeq) in the Capital Market has gained a strong role since the beginning of the quarantine, to the point of representing more than 20 percent of the total operated in these weeks. This, in a context in which SMEs need fresh silver to pay salaries and the risk of massive closure of SMEs is very high.

Between the last week of March and the end of April, the total volume operated in financing instruments for companies in the Capital Market totaled $ 21,136 million of which the Echeqs discount reached $ 4,545 million (21.5%), according to information from the Argentine Stock Market (MAV) and the Buenos Aires Stock Exchange (BCBA).

The data becomes relevant if it is taken into account that the first operation with an electronic check in the MAV was made at the beginning of March, so it is an instrument that, in little more than a month, went on to explain in volume a fifth in the market.

“Echeq is going to shine in the quarantine because it allows not using the physical format and that the Reciprocal Guarantee Societies (SGR) take it directly and discount it at the MAV,” Santiago Gambaro, chief economist at the consulting firm Analytica, told Télam.

The agility and security in its operation, added to the reduction in operating costs and reasons for rejection and the competitiveness of its discount rates (less than 10% for terms of up to 60 days) gave the check electronic strong momentum these past few weeks.

“In any case, this does not mean that the check is the future of financing. I would say that what it does is explain the drop in non-bank financing, which is currently at 30% of its normal volume,” Gambaro said.

In this sense, the growth of the portion of the market that Echeq won can be read as the other side of the collapse of negotiable obligations (ON) and financial trusts (FF), main financing mechanisms of large companies.

According to a report by First Capital, in January alone the FF traded volume was $ 2,617 million and ON $ 37,789, while in the first five weeks after the start of quarantine both instruments combined barely exceeded $ 5 billion.

“The Echeq comes in handy. It took the place of the deferred payment check for the facilities for its operation. But, in reality, its success is explained because it is the only tool that survived this coronavirus tsunami,” said Miguel Arrigoni, director of First Capital. According to Arrigoni, the problem of the capital market is its lack of depth that “could be ten times bigger if banks invested their money in, for example, securitized bonds that help finance these tools.”

“All credit is drowned by the rejection checks and there is going to be something to do with this issue because the only way to get out of this situation is to recreate the working capital that was destroyed in these two months, “Arrigoni said.

In any case, non-bank financing for SMEs could go into crisis in the coming weeks, should the default scenario for check drawers deepen.

The SGR, which are in charge of guaranteeing the majority of the checks that are operated in the MAV with a guarantee fund of up to 25% of the guaranteed amount, are being affected by the high level of rejection of documents due to lack of funds .

“It is a liquidity problem because many companies are with zero cash flow and the SGR are at a level of risk above what they can tolerate and are no longer guaranteeing SMEs,” said Gambaro.

And he added: “Today the paradox is taking place that the banking system should come to the rescue of the non-banking system, taking rejected checks.”

“This is a challenge for the Central Bank, which today has the Liquidation Account above $ 115, but which cannot raise the rate so as not to further complicate the SME sector, which have the payment chain in check,” concluded Gambaro.

Government plan to prevent SMEs from going bankrupt

The economic crisis caused by the stoppage of the activity of all industries, due to the coronavirus, put the government on alert.

The big question is what will happen when the quarantine is lifted and companies resume their activity, especially small and medium-sized companies, that is, SMEs.

That is why, faced with the danger of a significant number of competition requests that could be submitted as soon as the quarantine is lifted, the Government is analyzing the possibility of carrying out its own project to modify the bankruptcy law, with the aim of promoting “a bailout” to many SMEs.

The economic cabinet is analyzing this issue, with the idea of ​​drawing up measures that should be framed Save the SMEs

Last week, opposition lawmakers also introduced a bill on some modifications to the bankruptcy law.

In the Government they assure that the problem of that project is that it raises certain modifications for 2020, and the Executive’s objective would be a longer extension of time.

The Government fears for the bankruptcy petition of many SMEs.

So far, the government has granted the postponement of debts and the suspension of deadlines, but the central point is that the quarantine does not allow the normal functioning of Justice, with which, in the Government they admit that there could be in the coming months a “bankruptcy filing waterfall”.

The objective of this initiative, as they comment in the Executive, is to give a more transcendent character to the previous agreements between companies and creditors. “There are tools that are being analyzed in this regard, in order to promote a solution before the preventive route,” they highlighted.

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