Imagine buying fire insurance for the same property three times, from three different insurers, paying the full premium on each — even knowing that, if a loss occurs, only one policy will actually pay out. It sounds absurd. And yet that is exactly the logic found, repeatedly, in public-backed credit operations for small and medium-sized Brazilian companies.
In nearly half the cases reviewed in the sample behind this series — involving programs like PEAC-FGI and PRONAMPE — the same structural pattern showed up: the contract stacks a public guarantee, unlimited personal guarantees, and often additional real collateral, with no rate discount corresponding to the risk reduction that stacking represents for the lender.
In this analysis
How the public guarantee fund is supposed to work
Programs like FGI-PEAC (the Investment Guarantee Fund under Brazil's Emergency Credit Access Program) were specifically designed to mitigate the lender's risk and, in turn, enable lower interest rates for the borrower. Under these programs' design, the public fund covers up to 80% of the operation's credit risk. The regulatory logic is clear: less risk for the bank should, in theory, mean a lower rate and fewer additional guarantee requirements for the borrower.
What actually shows up in practice
In the cases reviewed, what repeats is the opposite of what the program's logic would suggest:
The public fund covers 80% of the risk — but the contract still demands unlimited, joint-and-several personal guarantees from every partner, covering 100% of the debt.
In some cases, an additional real collateral layer is stacked on top: a fiduciary lien on real estate, on industrial machinery, or a fiduciary assignment of the borrower's own financial investment (a CD-like instrument) — a structure in which, technically, the bank charges interest on capital that, in practice, never left its own custody, since the pledged investment remains held by the same lending institution.
In one case, the sum of coverages — an 80% public fund plus unlimited joint guarantees — reached roughly 180% coverage of the debt's value, with no corresponding rate reduction.
In another, the collateral structure stacked personal guarantee + pledged CD + credit-life insurance + public fund — four simultaneous layers of protection for the same credit risk.
The practical result: even with the bank's credit risk reduced to a minimal fraction — in many cases, theoretically close to zero given the sum of coverages — the interest rate charged stays at the level of unsecured, free-market-risk operations, with no discount reflecting that mitigation.
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Why this matters technically
The point isn't that requiring collateral is, in itself, abusive. It's that stacking guarantees without a corresponding price reduction breaks the causal link between risk and cost that justifies, from an economic and contractual standpoint, the very existence of a guarantee. From a legal standpoint, this imbalance engages Article 421 of the Brazilian Civil Code (social function of contracts), Article 422 (good faith) and, in some cases, Article 51 of the Consumer Protection Code, when layered collateral compounds with other potestative or disproportionate clauses.
There's also a rarely discussed side effect: when the bank collects the full Guarantee Fee (ECG) — what the borrower pays the public fund itself for covering the risk — without passing through any reduction in the interest rate charged, the cost of the public insurance stacks on top of the private insurance cost (personal guarantee, real collateral) instead of replacing it. The company then pays three times to mitigate the same risk: once to the guarantee fund, once with the partners' own personal wealth, and once with company assets pledged as real collateral.
What to ask before signing
If the operation involves a public-backed credit program, three questions deserve an explicit answer from the bank before signing:
- What rate does this same program charge on operations without a personal guarantee and without additional real collateral? If the difference is small or nonexistent, the public coverage isn't being priced in.
- Is the Guarantee Fee (ECG) being charged in full to the borrower, with no offsetting reduction in the interest rate?
- Is any guarantee (personal, real, or a pledged investment) released proportionally as long as payments stay current — or does it remain in full force until the debt is fully settled, regardless of how the risk evolves?
A guarantee's basic economic logic is to lower the cost of credit for whoever offers the lender more security. When it stacks up without that effect, it stops protecting the credit system and instead functions, in practice, as an additional layer of asset exposure for the business owner and its partners, with no measurable financial offset.
This article is part of a series on technical pathologies in business credit operations, based on expert opinions prepared by the author. Individual cases are treated in aggregate and anonymized form, with no identification of the companies or individuals involved.
Frequently asked questions
What is Brazil's FGI-PEAC and how is it supposed to lower credit costs?
It's the Investment Guarantee Fund under Brazil's Emergency Credit Access Program, covering up to 80% of the lender's credit risk on the operation. The regulatory logic is that less risk for the lender should mean a lower rate and fewer additional guarantee requirements for the borrower.
What is layered collateral in a public-backed credit operation?
It's the stacking of multiple layers of protection — a public guarantee fund, unlimited personal guarantees from the partners, and often additional real collateral — to cover the same credit risk, with no rate discount corresponding to the reduced exposure for the bank.
What is the Guarantee Fee (ECG) charged in Brazilian public credit programs?
It's the fee the borrower pays to the public fund itself for covering the credit risk. When the bank collects the ECG in full without passing through any reduction in the interest rate charged, the cost of the public insurance is added on top of the private insurance cost, rather than replacing it.
What should I ask the bank before signing a public-backed credit operation?
What rate the same program charges on operations without a personal guarantee and without additional real collateral; whether the guarantee fee is charged with no offsetting rate reduction; and whether any collateral is released proportionally as payments are made, or stays in full force until the debt is fully settled.
Dr. Lincoln Sposito
Specialist in banking audits and financial forensics, combining the statistical rigor of data science with the analysis of banking-system architectures to dismantle predatory charges against SMEs. Learn more about the expert →