How to issue a minibond: new opportunites for SMEs

The number of SMEs issuing minibonds is growing. Here the new opportunities

Getting financing through the issuance of bonds is a common practice to obtain quick liquidity without resorting to bank loans. Although it is one of the fastest ways to obtain financing, many companies forego this opportunity judging the issuance of debt securities as difficult to manage or suitable only for large companies. Nothing could be more wrong.

Since 2012, the Italian Government has extended to unlisted SMEs the possibility of issuing debt securities, the so-called minibonds.

Minibonds are debt securities under €50 million that allow companies to obtain short-term financing without recourse to bank credit.

They can be issued by all SMEs other than banks and micro-enterprises and offer some advantages:

  • they are sustainable: the issue size is chosen by the company according to its needs and debt sustainability analysis;
  • they have medium-to-long term maturity: the repayment of the principal can occur in a single payment at maturity, avoiding significant cash outlays at a time when the investment has not yet generated returns;
  • they improve bank-business relations by reducing companies dependence on bank credit:
  • collaterals are not required: guarantees are welcome, but not mandatory. 

How to issue minibonds

Minibonds are a versatile tool to finance internal growth, replenish cash liquidity or even extinguish outstanding financial debt to the banking system. There are two ways to issue minibonds: go "solo" or apply to a basket bond initiative.

Issuing a minibond can be complicated, as often SMEs do not have specific skills to arrange a bond issue. Therefore, it may be useful to consult an advisor, who consults the company in the choice of the bond terms (timing of the issue, value of the securities, maturity, interest rate, etc.) and a legal advisor who verifies the correctness of the procedures. Finally, the company should turn to the arranger, who is responsible for the placement and the research of potential investors.

A less demanding alternative is to apply to a crowdfunding platform authorized to place minibonds, as CrowdfundMe. In this case, the company only needs to verify if it meets the minimum requirements. Once admitted, it will be guided in the placement of the stock on the platform and the stock exchange market.

Basket Bonds

Basket bonds are portfolios of debt securities that collects the minibond issues of a group of companies. In this way, SMEs can issue securities of small denomination, economically sustainable, and in line with cash flow forecasts.

Here some of the most consistent basket bond initiatives in Italy:

Garanzia Campania Bond: from May 6, the initiative of the Campania Region that finances local SMEs by assisting them in the issue of minibonds, reopened for applications. SMEs with operational headquarters in the Campania region and a valid rating issued by an ECAI agency of at least BB- (or equivalent) or which meet the economic and financial requirements listed on the website may apply for the initiative.

Basket Loan: Basket Loan is the basket bond initiative launched by Elite that allows SMEs with a rating equal to BB- or higher to obtain a loan from a minimum of € 500 thousand to a maximum of 3.5 million within thirty days. The project provides for the securitization of the financing portfolio, 90% guaranteed by the Italian Central Guarantee Fund.

Basket Bond Mezzogiorno: also promoted by the Elite network is the "Basket Bond Mezzogiorno" operation, which aims at conveying liquidity to businesses in southern Italy. The project is dedicated to Italian SMEs and Mid-Caps based in the following regions: Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia and Sicily and have a credit rating issued by an ECAI Rating Agency at least equal to BB+.

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