Zero-interest loan for individuals: is it possible?

A zero-interest loan is one of the biggest dreams of anyone who needs a little extra cash to organize their finances or invest in their own business, right?

What is the Zero Interest program?

Created by the State Secretariat for Sustainable Economic Development (SDE), in partnership with the Government of the State of Santa Catarina, BADESC, SEBRAE and the Association of Microcredit and Microfinance Institutions of the Southern Region of Brazil (AMCRED/SC), this program is an initiative aimed at Individual Microentrepreneurs (MEIs).

The main objective is to promote the economic growth of the State through the release of interest-free credit lines.

According to information from the Government of Santa Catarina, the program – which was created in 2011 – has already granted more than R$1,400,000 in credit to MEIs in the state, through approximately 122,000 operations.

Furthermore, the microcredit program also broke its record for loans granted last July. More than R$7.3 million in credit was disbursed across more than 1,600 operations conducted throughout the month.

This investment aims to help small business owners in the South of the country.

How does a zero interest loan work?

A little different from other lines of credit currently on the market, in this one, the customer who requests the loan has a single term of eight months to pay this amount.

When opting for this credit model and obtaining the benefits that the loan offers, the customer must commit to making the first seven payments without delay.

In this way, the last installment is subsidized by the State Government.

When paid by the responsible institution, this last installment, which refers to the loan's interest, makes the transaction interest-free.

For example: when requesting a loan of R$3,000, the customer receives a payment slip. This slip contains eight installments of R$428.57, totaling R$3,428.57.

However, when payments are made on time, the final installment is paid by the Santa Catarina State Government. This results in the customer paying R$1,999.99.

What is the available credit limit?

In this loan model, the maximum amount a customer can request is R$1,000. This is a microloan designed to allow MEIs to invest in their business.

Why such a short fixed term?

The short period of time was the way the project's creators found to be able to offer an interest-free line of credit.

As mentioned previously, the borrower must pay the first seven installments – either in advance or on time.

The important thing is to stay on time. This way, the eighth installment will automatically be subsidized by the State Government.

Who can apply for this zero interest loan?

To participate in the zero-interest loan program, the microentrepreneur must have a formalized status and must also reside in Santa Catarina.

The entrepreneur also has the right to carry out up to two transactions, both of which will be subject to credit analysis by the responsible institutions. Only after this approval is the credit line released.

The main areas of activity of MEIs

Throughout the state of Santa Catarina, the cities with the highest number of MEIs are Florianópolis, Joinville, Blumenau, Itajaí, and São José. The main activities performed by MEIs include:

Retail trade;
Repairs and maintenance of computer equipment;
Services for the construction sector;
Advertising;
Food.

Advantages and disadvantages of zero interest loans

Like any type of financial transaction, this one also has some positive and negative points.

Among the positives, I don't even need to say that the absence of interest is the main one, right?

Despite the need to meet payment deadlines to obtain the benefit, without the high fees found in conventional loans, the customer has greater peace of mind when dealing with the repayment of this credit without having to compromise their budget.

Among the negative points, the one that draws the most attention is the segmentation for releasing this loan model.

Although it is for individuals, credit is still specifically intended for individual microentrepreneurs, the famous MEI.

Another point that could be a bit negative is that, as the project was created by the Santa Catarina State Government, this line of credit is only available to residents of the state.

Another alternative for micro-enterprises and MEIs

Due to the crisis caused by the COVID-19 pandemic, Santa Catarina launched another credit program to help the economic recovery of MEIs, small and medium-sized companies in the state, functioning as an incentive program.

Under this model, MEIs will be able to apply for loans of up to R$10,000. Beneficiary microenterprises will have access to loans of up to R$100,000.

Those who have suffered significant financial hardship due to the pandemic will benefit. Under this line of credit, entrepreneurs will have a grace period of up to 12 months before making payments, which can be paid in 36 installments.

Conclusion

This could be a great solution for MEIs who want to invest even more in their business, or even to help balance the financial lives of these entrepreneurs.

Although it is still a more niche system – as it was created only for residents of Santa Catarina – the results are quite effective, helping to stimulate the economy and contributing to the growth of this market segment.

This is a great idea for generating development, and could be a great tool to help microentrepreneurs throughout Brazil, if the program that offers this type of credit were implemented in more Brazilian states, or even throughout the entire national territory.

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Nathalia P. Silva 7 de October de 2021