Although small businesses represent a good part of the economy, there are several obstacles in the country not only to open and expand them, but also to keep them alive over time. Economic problems are the first to attract attention.
Small entrepreneurs are strongly affected by periods of high inflation and interest rates like the current one and have greater difficulties in accessing the financial products needed to maintain and expand their business, especially credit: they face the highest interest rates in the market due to the profile of demand and the difficulty in offering guarantees. In 2020, only 26% of small businesses reported that they felt they were well served by the banking system.
However, another less talked about obstacle is the lack of financial training to manage and expand the business. Research also on small business survival conducted in 2021 found that, in addition to the economic environment, lack of personal preparedness of the entrepreneur and poor business planning and management were preponderant factors for business closure in less than 5 years.
Such issues can be solved with financial education specifically targeted to this audience, and the entrepreneurs themselves highlight the issue. In the same survey, factors were identified that would have contributed to the continuity of the businesses that closed, highlighting issues related to the financial education of the entrepreneur, such as more effective financial management and planning. ECLAC even pointed out that a possible reason why Brazilian companies voluntarily give up seeking credit is the lack of financial education to identify that they need the money or that the credit product is what would solve their problems.
Clarity on how to intervene to improve the financial education of small entrepreneurs
The perception that providing targeted financial education to small entrepreneurs can result in higher business survival and, consequently, even economic outcomes for the country, is not thoroughly investigated in the literature, but is corroborated by existing evidence. As an example, an evaluation of the performance of the S system conducted in 2018 found that receiving assistance increased the probability of business formalization and the demand for credit.
Internationally, the OECD has noted that financial education can result in financial behaviors such as savings and better investment choices. In Canada, the Canadian Youth Business Foundation's financial capability projects increased the likelihood of loans being repaid correctly and reduced business failure rates.
In Kenya, financial capability programs focused specifically on SMEs generated increased revenue, improved credit management, and positively influenced the loan portfolio. Still, the topic can be considered underexplored, as evaluations on the effectiveness of such actions are scarce, and studies conclude that the way interventions are implemented has little influence on the financial behavior of individuals and should be re-evaluated.
Thus, although the importance of having measures in this regard is recognized and some are already in place in several countries, there is little clarity on what works. In any case, considering that financial education is relevant for the survival of small businesses and that these are the heart of the Brazilian economy, the subject needs to be studied further for a better understanding of the phenomena, both in academia and in public policy.
