BEATing the Financing Challenge for SMEs through Prospects

BEATing the Financing Challenge for SMEs through Prospects

From our experience in advising several small and medium-sized enterprises, a common challenge frequently comes up in our discussions. Business owners might have perfectly good ideas and lucrative initiatives that have sound business potential. Yet they lack the necessary funding required to finance such initiatives particularly in the initial years where extensive capital investment is required. Whilst Banks have traditionally been their first port of call, some companies are now complaining that they are frequently finding a “closed doors” approach from these institutions. Moreover, in Malta, opportunities for funding through private equity and venture capital are not only extremely limited, but the business ideas of these owners are frequently incompatible with the risk/return appetite of these investors. It is within this ambit that the Prospects Multilateral Trading Facility (MTF) might offer a perfect respite for the cash-hungry lucrative business opportunities.

Prospects MTF is a relatively new scheme issued and regulated by the Malta Stock Exchange wherein Small and Medium-Sized Enterprises have the possibility of accessing a secondary stock market without having to fulfil the stringent requirements of companies listed in the Primary Market. Potential Issuers under this scheme may seek maximum funding of Euro 8 million per issue either in the form of a bond or in the form of equity. Additional requirements are imposed on companies that fall under the definition of Property Companies. An exemption from tax on capital gains arising from the sale of the financial instrument has further been extended from the main market to also apply to Prospects MTF.

Whilst the requirements for entry into the Prospects MTF Market are less onerous than those of the Primary Market, it does not mean that such companies are second-rated. On the contrary, the Prospects Listing Rules places the Investor Protection Principle at the heart of all of its provisions but without the unnecessary red tape that stifles progress in qualifying under the rules. In fact, interested entities are required to appoint a licenced and accredited Corporate Advisor who will act as an independent assessor of the business and its qualification to enter into the Prospects MTF market. Moreover, the Corporate Advisor remains in place post the listing phase to guide the company in ensuring its continued compliance in fulfilling its obligations under the Prospects Rules. However, the role of the Corporate Advisor goes beyond that of a watchdog and is there to help the company succeed and prosper for the benefit of shareholders and other stakeholders. Investors however need to be aware that although their interests are protected through sound regulatory principles and under the watchful eye of both the Corporate Advisor and the MSE, such investments typically carry higher risks than those attributed to the Primary Market since typical organisations seeking listing on this Multi-lateral Trading Facility are typically less mature and established than those listed on the primary market.

From an issuer perspective, apart from access to an alternative source of finance, Prospects MTF not only provides an opportunity to SMEs to place them on the map through increased exposure both locally and abroad but serves as a catalyst for change to implement sound management and corporate governance practices that enable it to make a paradigm shift from good to great.

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by David Galea, Chief Executive Officer / Founder at BEAT Limited

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