If you're the head of a fast-growing SME, you're likely to find it difficult to obtain funding from traditional providers such as banks. In this case you can take advantage of the mini bond market, a perfect tool to raise new capital designed specifically for high-growth companies not yet listed on the stock exchange.
What are mini bonds
Mini Bonds are an alternative to traditional bonds with which small and medium-sized companies not listed on the stock exchange can raise the money needed to finance their investment programs.
Mini Bonds were introduced in Italy with the "Development Decree" of 2012 and the "Development Decree Bis" and allow SMEs to open up to the capital market, reducing dependence on bank credit. Like all bonds, they have a recognized interest rate in the form of a periodic coupon, and a maturity date. This type of bond, designed for SMEs in search of liquidity, is easy to issue, less complicated and less expensive.
What are the characteristics of mini bonds
These are the main characteristics of mini bonds:
- They have a minimum maturity of 36 months;
- They are intended for subscription exclusively among professional investors (institutional and private qualified according to MiFID/Consob);
- There is the possibility to dematerialize the securities and to list them on regulated markets and multilateral trading systems (e.g. ExtraMOT PRO of Borsa Italiana).
Who can issue mini bonds and who can buy them
According to research carried out by the Minibond Observatory of the Politecnico di Milano, with the Covid-19 pandemic, the use of this financing tool has soared. Of the more than 800 Italian companies that have issued mini-bonds to date, as many as 200 have done so during 2020, when the crisis will also compliment healthy businesses. In fact, one of the key requirements for issuing coupons is that the company is not undergoing a composition or liquidation.
Mini bonds are often used to finance extraordinary investments, such as in research and development, so they are very useful as a tool to encourage the growth of companies in the medium to long term.
Companies that are not listed on lists open to private investors, but also cooperatives, can issue mini-bonds. Further conditions are a turnover of more than 2 million euros and at least 10 employees.
Not everyone can invest in mini bonds. In fact, this type of bond is reserved for professional institutional investors such as banks, financial intermediaries, pension funds, insurance companies and others, provided they meet certain capital and experience requirements. Recently, the mini bond market has been extended to crowdfunding platforms = such as 2meet2biz.com - thus widening the market to different types of operators as long as they respect certain characteristics.
The advantages of issuing mini-bonds over bank credit
SMEs that issue mini bonds can enjoy a number of advantages, first and foremost greater independence from the banking system. A further advantage is that the valuation of the company is not based on the guarantees offered and the history of the company but on the patrimonial solidity, profitability and cashflow (i.e. the difference between the incoming and outgoing cash flows) of the company.
Are you an SME? Here's how you can issue mini bonds
Issuing mini bonds is a fairly complex process that requires the involvement of various skills. It is of fundamental importance to use qualified and trained advisors in order to make the process of construction, arrangement and issuance of the mini bond effective and efficient. For this reason, it is advisable to turn to experienced operators in the sector.
If you want to understand how to raise new capital, including underwriting operations, contact us for a free and non-binding pre-feasibility analysis.
Our mini bond portal is available at this link.