The bond issue, a financing solution for SMEs
Managers of SMEs, entrepreneurs, you are looking for funds to expand? The bond financing may be the right solution and FirmFunding helps you to find it. SMEs have several tools at their disposal to finance their development: bank financing, financing by capital increase (otherwise called « equity », which requires issuing shares), tax credit mechanisms allowing public financing of innovation or research (Research Tax Credit - CIR, Tax Credit for Creativity and Employment - CICE, ...), inter-company loans ... and bond financing, which involves issuing debt securities (bonds), otherwise called « private debt ».
As a means of financing commonly used by large groups and ETIs, for which it is a tool for diversifying and strengthening equity capital, bond financing is still too little used by SMEs, no doubt due to ignorance of its existence as a financing tool, but also due to a lack of knowledge of the professional players likely to participate in this type of operation.
FirmFunding, the first and only platform dedicated in particular to bond financing, makes it possible to connect, on its marketplace, SMEs looking for financing and investors likely to finance them.
The bond issue, conditions of implementation and eligible companies
The conditions to set up a bond financing are the following :
The bond issue for the SME gives rise to an issue of securities (the bonds) so that joint stock companies (SA, SAS, SCA), even newly created, are the first companies to be eligible, subject to compliance with relatively simple conditions: fully paid-up share capital, asset/liability verification if the company has been in existence for less than two years. The decision is in principle made by the company's administrative body (board of directors), the manager(s), unless otherwise provided for in the articles of association. The SARL may also have recourse to this type of financing, but under stricter conditions: it must be three years old, meet certain size criteria and provide subscribers with an information document and a notice relating to the conditions of issue. The decision is made by the shareholders' meeting.
The bond issue makes it possible to avoid dilution of capital and to finance projects that cannot be financed by a bank loan.
Bond financing is a medium to long-term financing solution. The rates charged, depending on the type of financing, vary from 5 to 12%, a cost that is certainly higher than that of a bank loan, but less than that associated with equity financing. The investors (institutional - bond funds - or not), provide the financing at the end of a securities issue contract, fixing all the conditions relating to the repayment in particular, and providing, if necessary, guarantees (for example on real estate assets, inventories...).
It has the advantage, compared to bank financing, of allowing a repayment in fine of the amount of financing (only the interest is repaid before maturity, which preserves the cash flow of the SME). It also makes it possible to cover needs traditionally not financed by banking players, such as intangible investments, research and development projects or purely capital-intensive operations. Finally, it offers founding managers a real alternative to equity, much less expensive and above all non-dilutive.
The bond issue makes it possible to finance all types of projects
Bond financing is used to finance development projects and growth of SMEs, which traditionally cannot be financed with bank debt. It is thus possible to finance any type of project, in all sectors such as :
- external growth: acquisitions of other entities or branches, generally in addition to bank and equity financing
- organic growth: intangible projects (research and development), financing or refinancing of tangible or intangible assets, internal development (hiring, marketing, IT)
- operations of transmission of capital: buy-out by employees or management of the SME (otherwise called « MBO » - Manager-By-Out), or by players outside the SME (otherwise called « MBI » - Manager-by-In), or by the founders/directors by allowing the exit of minority shareholders (otherwise called « OBO » - Owner-by-Out).
FirmFunding, platform for financing these projects, allows SMEs, through their consulting firm, to propose their financing files to all registered professional investors (more than 250, divided between management companies and family-offices or multi-family offices), in an instantaneous way. During the two-month period that their applications are online, investors can contact the advisor and the SME directly to exchange and undertake the standard due diligence process. Prior to this online posting, FirmFunding teams assist the SME in order to help them present their project in the most intelligible and credible way for the investors and to maximize the chances of success of the operation. More than 60 projects have thus been put online, allowing entrepreneurs and SMEs to finance and materialize their development.