A report published earlier this week by the Malta Business Bureau highlights that as many as 30% of local enterprises find it difficult to raise the finance required to further their development.
The report, entitled ‘Market gaps in access to finance and the feasibility of new financing instruments in the EU addressing the credit needs of Maltese business’, has been presented by the MBB to the Minister for Small Business, Chris Cardona, and the Minister for Tourism, Karmenu Vella.
The key problem enterprises are facing is that a limited range of financing options is available. 72% of SMEs in the start-up phase are currently using ‘traditional’ lending products such as loans and overdrafts when these are not necessarily the best solution for companies that are going through their stage of development.
Different funding solutions need to be found for enterprises which cannot put up tangible assets as collateral but who have a good business proposal.“Lack of diversified financial products is limiting the development of SMEs. It was in light of this obstacle that the MBB embarked upon this study,” explains MBB president George Vella.
“Malta needs to diversify the financing options for SMEs to generate further economic development through the growth of SMEs. Increasing the range of existing financing options is also important to support the development of new sectors such as those that are heavily reliant on research and development, creativity and innovation,” Mr Vella continued.
The EU acknowledges that throughout Europe, SMEs are increasingly requiring additional financing sources apart from lending. This need is being addressed through the new 2014-2020 Multiannual Financial Framework Programming Period. As part of this programme, the EU is pushing towards promoting funding sources for SMEs in addition to lending.
Key among these funding sources is grant funding and innovative financial instruments, among which is the JEREMIE fund, as well as the cross-border regulation of Venture Capital Funds.
To date, the BOV administered JEREMIE package, has proven to be a success story in making less burdensome funding available to businesses. BOV’s Chief Executive Officer, Charles Borg stated that, “JEREMIE has been a big success, helping nearly 500 SMEs to date; but BOV understands that traditional bank products need to be complemented by other options.
“This is one of the main reasons that we have supported the MBB in conducting this survey: the first step towards providing solutions is to understand the problem,” he said.
JEREMIE is an instrument managed by the European Investment Fund and consists of three possible variants – loan guarantees, seed-loans and equity guarantees. In Malta only loan-guarantees have been adopted, however the MBB’s report shows that there is a clear and unequivocal need of taking up packages under the other two streams.
Increasing the range of existing financing options would better address the credit needs of local enterprises. To this end, exploring the potential for venture capital instruments can also serve as another financing option for local businesses. Venture capital is private equity administered through a fund generally provided to start-ups with high risk, and high potential returns. “For a small economy like Malta, venture capital can provide a means of strengthening and complementing current efforts at attracting foreign direct investment,” commented Mr Vella.
100 SMEs, ranging in size and development stage from seed phase to internationalisation took part in this survey, carried out by Ernst & Young. This is the second in a series of joint assessment studies undertaken by the MBB and BOV following last year’s impact assessment on a Common Consolidated Corporate Tax Base (CCCTB).