Brazil's Greatest Asymmetry May Not Be in the Stock Market

It may be on the balance sheet of the entrepreneur who built wealth, but still buys money as if he had built nothing.

I have spent much of my life looking for things that were mispriced.

Stocks the market treated as corpses, but that were still breathing.

Companies that looked expensive because present earnings concealed future economic power.

Risks everyone feared, although few had stopped to measure them.

And, in the opposite direction, assets celebrated as inevitable whose prices already required the future to behave with a perfection the future has never shown it possesses.

Investing is, to a large extent, the search for the distance between a thing and the opinion the market has formed about it.

When that distance is large, there is asymmetry.

When it is small, there is only activity.

But some time ago I began to notice a strange distortion.

The entrepreneur spends decades building assets, but when he needs money, he is priced as if none of them counted.

He has real estate.

Receivables.

Inventory.

Equipment.

Contracts.

Relationships.

History.

Reputation.

A company that survived crises, governments, currencies, competitors, taxes, and bad decisions.

Yet he walks into a branch, hands over the company registration number, and receives a rate produced by a table.

Everything he built over twenty years is compressed into a classification generated in a few seconds.

They call this credit analysis.

Sometimes it is only the inability to analyze anything that does not fit the conveyor belt.

The bank is not necessarily wrong.

This point matters.

Banks were not built to understand each entrepreneur deeply. They were built to process large volumes of transactions with enough consistency not to die.

Scale requires averages.

Averages require standardization.

Standardization requires ignoring precisely what makes each company different.

The system works.

The problem is that it works better for the system than for the client.

A credit product must be replicable. It must fit an internal policy, a screen, an approval level, and a committee meeting that cannot last three days for each transaction.

That is why the product begins with a convenient question:

How much can we lend to this company registration number within what we already sell?

But that is not the question the entrepreneur should be asking.

The correct question would be:

Given everything I have built, what is the smartest way to transform wealth, cash flow, and credibility into capital?

The two questions sound similar.

They are not.

One begins on the bank's shelf.

The other begins on the entrepreneur's balance sheet.

One looks for an available product.

The other designs a possible structure.

One prices the client according to one institution's policy.

The other presents the transaction in a way that allows different institutions to price it.

That changes everything.

Money is also a product.

That statement is uncomfortable because banks spent centuries wrapping money in an almost priestly aura. Marble branches, private rooms, managers, acronyms, committees, contracts, and technical vocabulary help maintain the impression that the bank grants some exclusive substance.

It does not.

The real from one institution is worth the same as the real from another.

What changes is the source, the term, the collateral, the priority, the structure, the perceived risk, and the price.

Money is a commodity.

The structure is not.

An entrepreneur can have a good company and a bad debt.

He can have wealth and no liquidity.

He can own a fully paid property while paying obscene interest on working capital.

He can discount receivables every month because no one organized his cash flow for a longer-term transaction.

He can offer too much collateral on a small debt because he negotiated under urgency.

He can accept a high rate not because he represents high risk, but because he arrived at the table alone.

This may be the least discussed part of business credit.

The entrepreneur is almost always alone.

On the other side sits an institution that lends money every day.

It has models, lawyers, analysts, contracts, policies, committees, and the accumulated memory of thousands of transactions.

On the entrepreneur's side there is a man who may make one relevant financial decision every three or four years.

One side sells money professionally.

The other buys money occasionally.

Even so, we pretend the negotiation is balanced.

It is not.

The institution knows which clauses matter.

It knows which guarantees it could accept.

It knows how far it can lower the rate.

It knows what the committee fears.

It knows what must appear on paper for that fear to be reduced.

The entrepreneur only knows that he needs the money.

Urgency is an expensive form of ignorance.

The more urgent the need, the less time there is to organize the story of the transaction, compare sources, redesign guarantees, or refuse bad terms.

That is why the most expensive credit is not necessarily granted to the worst entrepreneur.

It is often granted to the least represented entrepreneur.

The largest companies understood this long ago.

They do not walk into a branch and ask which line is available.

They have a chief financial officer, treasury, advisers, lawyers, banks competing for the mandate, and professionals responsible for presenting each debt as what it really is: a negotiable structure.

They issue.

They securitize.

They link receivables.

They separate risks.

They combine maturities.

They negotiate guarantees.

They exchange short debt for long debt.

They make the creditor compete not only on rate, but on the entire architecture of the transaction.

We call this capital markets when it happens with a huge company.

When it happens with a medium-sized company, we still treat it as an exception.

But the difference between them is not only size.

It is representation.

One has people sitting beside it.

The other has a manager sitting across from it.

For a long time, the financial market convinced entrepreneurs that they suffered from a lack of credit.

Perhaps the diagnosis is incomplete.

Brazil has money.

Banks have money.

Funds have money.

Cooperatives have money.

Securitization companies have money.

Investors look for credit assets.

Institutions look for good transactions.

The problem is not only lack of capital.

It is the distance between available capital and the company that does not know how to turn its economic history into a transaction intelligible to whoever lends.

Capital exists.

What is missing is translation.

The institution sees documents.

The entrepreneur sees his own story.

Between the two there is an abyss.

On one side, the man knows he paid every debt for the last fifteen years, that his property is worth more than it shows in the accounting, that customers keep buying even during crises, and that a specific opportunity would justify taking money now.

On the other, the analyst sees revenue, leverage, score, collateral, sector, and concentration.

Both may be right.

But they are speaking different languages.

This is the space where money becomes expensive.

Interest does not compensate only real risk.

It also compensates the risk that was not explained, the collateral that was not organized, the cash flow that was not demonstrated, and the transaction that arrived incomplete.

Every unanswered question becomes spread.

That is why reducing the cost of capital does not necessarily begin by looking for a lower rate.

It begins by reducing the questions the creditor needs to price.

What is the source of repayment?

What happens if revenue falls?

Which asset supports the debt?

What is the real liquidity of that collateral?

Does the debt term match the investment term?

Who gets paid first?

How will the money be used?

What prevents a temporary difficulty from becoming a permanent loss?

A well-built transaction does not eliminate risk.

It makes risk legible.

And legible risk costs less than confused risk.

Modern finance automated credit execution.

Forms became digital.

Documents can be sent by phone.

Scores are calculated in seconds.

Offers appear in apps.

Contracts receive electronic signatures.

The money arrives faster.

All of this is useful.

But speed does not correct direction.

Putting a bad product in a good app only allows the client to make the mistake without leaving home.

The great transformation in business credit will not come only from approving faster.

It will come from deciding better.

Deciding whether the company should take credit.

How much it should take.

For what term.

With which collateral.

In which entity.

For what purpose.

In what order its debts should be reorganized.

And, perhaps most importantly, when the entrepreneur should hear something no credit seller has an incentive to tell him:

Do not take this money.

That will be the distinction between distribution and advice.

The distributor is paid when money moves.

Whoever stands on the entrepreneur's side must be able to earn trust also when he recommends that nothing move.

It is an economically difficult position.

Perhaps that is why it is so rare.

Twelve years ago I wrote that the bank of the future would be a person.

Not because technology would fail.

On the contrary.

The more payments, investments, analyses, and contracts were automated, the cheaper it would become to execute a financial transaction.

And the cheaper execution became, the more expensive judgment would become.

I still believe that.

But today I would add one thing.

The banker of the future will not merely be someone who knows the client.

He will be someone capable of economically representing everything the client has built before institutions designed to see only parts.

Knowing without being able to structure is friendship.

Structuring without knowing is distribution.

What the entrepreneur lacks lives in the space between the two.

Perhaps Brazil's greatest asymmetry is not in a forgotten stock, a new currency, or a technology company.

Perhaps it is on the balance sheets of millions of entrepreneurs who own valuable assets, real businesses, and histories of survival, but still buy money as anonymous consumers.

A mispriced asset can enrich the investor.

A mispriced debt impoverishes the entrepreneur every month.

I spent years looking for the first kind of distortion.

I have been thinking more and more about the second.

Some ideas ask for a letter.

Others, when they mature, demand an institution.

Leo Bentier