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

When does listing on Prospects MTF make sense?

Sometimes coming up with the great idea is the easiest part. Then once you get the courage to strike out on your own, the real challenges begin. One of the most difficult aspects of starting a new business is when (and how) to raise money: every company needs capital to pursue exciting opportunities such as expanding internationally, opening new locations, hiring new talents or developing a new service.

There will be times when you need to increase your available capital. Taking on debt or new investors can spur your company to greater growth and stability, but it also comes with downsides. If raising more capital will give you the resources to grow your company without jeopardising its stability, then it is probably worth the cost.

Do you need funding right now to take your start-up/SME to the next level? 

The Prospects MTF is specifically designed to bridge this ‘financing gap’ for Start-ups and SMEs.

Here are some of the highlights of this scheme:

➔ Cost-effective access to capital – no need for collateral or security;

➔ A market specifically designed for Start-ups and SMEs;

➔ A greater pool of investors for Start-Ups and SMEs: they are no longer restricted to investments made by family members and business partners;

➔ A Corporate Advisor is appointed during the admission stage and thereafter to advise the Start-up or SME and be a channel of communication with the MSE;

➔ The appointment of a Corporate Advisor instils further investor confidence;

➔ A business plan is required (this information is sufficient for Start-ups, as opposed to ;

➔ Admission is granted by the Malta Stock Exchange;

➔ No minimum set for the value of the Initial Public Offering;

➔ Any number of shares may be floated – there is no requirement for a minimum percentage of shares to be held by the public as with the Main Market;

➔ Economical fee structures;

What are the cons of listing bond or equities on the Prospects MTF?

➔ Do not admit collective investment schemes;

➔ The bonds or equities are not passportable within the European Union

If you own a start-up or SME and would like to explore the possibilities of the Prospects MTF please contact us

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