Issuing minibonds can be a strategic choice for an SME seeking capital to invest. Indeed, minibonds are among the easiest and least expensive bonds to issue. It is an innovative financial instrument, generally dedicated to unlisted companies but designed especially for SMEs.
To issue minibonds, a company must have fewer than 50 employees and an annual turnover or balance sheet total of less than EUR 10 million (so-called Small Enterprises) or fewer than 250 employees and an annual turnover of less than EUR 50 million or balance sheet total assets of less than EUR 43 million (so-called Medium Enterprises).
Thanks to this instrument, companies can raise funds by offering securities in exchange to those who wish to invest in the company's project. Investors do not become shareholders, but holders of medium- to long-term bonds or debt securities.
Like all bonds, the interest rate recognised has a periodic coupon and a maturity date. Thus, minibonds are easy to manage and above all are an opportunity to open up to the capital market and raise funds without further increasing dependence on bank credit.
Why and how to issue minibonds
In addition to the simplicity of issuance and the fact that they make it possible to raise capital without selling shares in the company, these are further advantages of issuing minibonds:
· They are a sustainable financing formula because the issue size is chosen by the company based on its needs.
· They can be medium- to long-term, with a duration generally between three and five years.
· Most minibonds provide for the payment of a fixed coupon to investors every 6 months, while the repayment of the financing takes place at maturity, thus avoiding large cash outlays before the investment has generated returns.
· They are not reported to the Centrale Rischi, so they do not preclude access to bank credit.
· They do not require compulsory guarantees.
Minibonds can be issued in several ways, either autonomously by the issuing company or through authorised placement agents. Autonomous issuance can be risky and complicated, because usually the team of an SME does not have the specific expertise to issue minibonds. It is therefore advisable to turn to a specialised advisor who can guide the company on the choice of securities and the entire placement process. Turning to a platform is certainly the easiest way to issue minibonds without encountering problems.
How to use the funds raised with minibonds
Minibonds can be used to finance various activities, such as
· ensuring short-term liquidity and financing working capital,
· supporting industrial development plans or medium- to long-term internationalisation programmes,
· refinancing maturing debts.
In the case of short-term minibonds, the issuance of securities can be conceived in a 'serial' manner, i.e., repeated over time on a regular basis.
Costs to be considered in the issuance of minibonds
As we have already mentioned, minibonds also have the advantage of being relatively inexpensive for the issuing company. The interest rate is usually fixed but can also be variable.
Typically, the cost is between 1% and 2.5% for the overall issuance and eventual listing of the minibond. If we try to estimate an indicative annual cost, we get a figure ranging from 5 thousand to 15 thousand euros.
Then there is the cost of obtaining a rating from specialised companies, which is not compulsory but serves to make the issue much more attractive to interested investors, as well as allowing SMEs to borrow at even lower rates. This costs about another EUR 20,000. The rating must be of a certain type (usually higher than B3 on the Modefinance scale) to be considered by platforms that help place minibonds.
Other expenses and fixed costs to be considered are:
· Possible drafting of the Business Plan with the help of an Advisor.
· Management of the website and disclosure required by the investor and/or the trading exchange, if any.
· One-off listing fees of € 2,500 for admission. No fees during the life of the instrument.
· Placement Fee.
· Interest rate, which may be quarterly, half-yearly or annual and depends on market rates, the creditworthiness of the company and the issuer's rating, if any, but is also influenced by any collateral required by the investor, the spread, the risk premium, the illiquidity premium and the nature of the security.
· One-off legal costs for the drafting of the minutes relating to the issue resolution, the drafting of the minibond subscription contract and all other transactions requiring the intervention of a professional
· Application for the ISIN code, the international code that uniquely identifies financial instruments.
· Preparation of the periodic information report.
As costs may vary, our advice is to contact authorised platforms for more specific information.