Market Gaps on Access to Finance - Bank of Valletta

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Malta Business Bureau – <strong>Market</strong> gaps in access to finance April 2013 Figure 5: Annual Turnover in Malta for 2011 13% 16% 15% The next table shows the sectors of the firms in the sample, analysed according to the stage of development in their life cycle. It is pertinent to note that there is no clear-cut objective demarcation or criteria to classify firms by lifecycle, especially in the growth stages. Table 3: Distribution of firms by lifecycle and economic sector Stage Manufacturing Retail/ Distribution Page | 44 Tourism / Hospitality Life Sciences and ICT Other Service s Total Start-up 1% 1% 2% 5% 1% 10% Emerginggrowth 0% 1% 0% 0% 3% 4% Domestic growth 10% 20% 25% 7% 12% 74% Expansiongrowth 5% 2% 3% 2% 1% 13% 16% 24% 30% 14% 17% 100% The table shows that about three-fourths of firms are in the domestic growth lifecycle stage. This is a natural reflection of the type of Malta Chamber and MHRA members. On the other hand, 10% are in the start-up phase – this time a reflection of the selection process from the ERDF Small Start-up Grant Scheme 96 . In terms of year of incorporation, all start-up phase firms in the sample were incorporated in the last 24 months, while the majority of the firms in the “Domestic-Growth” and “Expansion-Growth” stages were incorporated prior to the year 1990 (Development-Growth: 53%, Expansion Growth: 54%, Average: 25%). There were also a couple of legacy firms having been incorporated in the 1800s. 5.2 General Characteristics 51% This section provides an overview of the general characteristics of the SME respondents. Where applicable, answers are analysed by size, sector and lifecycle. 5.2.1 Q1: Who are the owners of your firm? 4% < 0.5M 0.5M - 1M 1M to 2M 2M to 10M 10M to 50M In this question respondents were prompted with possible answers on their ownership structure. The results are shown in the following table: 96 On a similar note, there were no firms in the “pre-seed/seed stage”. This is again a reflection of the population used as a basis for the random generation of the sample, but could also reflect the fact that a firm in such an early stage might still have to apply for finance since it is still in the phase of converting an idea into a registered company. Such firms might thus have limited experience of access to finance.
Malta Business Bureau – <strong>Market</strong> gaps in access to finance April 2013 Table 4: Firm Owners Start-up Emerginggrowth Page | 45 Domestic growth Expansion -growth Total One Owner 60% (6) 50% (2) 20% (15) 62% (8) 30% (31) Family/ Entrepreneurs 30% (3) 0% (0) 67% (50) 31% (4) 56% (57) Other firms/ Business Associates 10% (1) 50% (2) 13% (10) 8% (1) 14% (14) Base: All Respondents The table above shows that the most common type of ownership is the family business, which is followed by the “one owner” category. None of the firms that were interviewed are publicly listed on the stock exchange – as discussed in Section 3.4.5 this is very often the case with the majority of small and micro size firms. The results also reflect a common belief among SMEs that obtaining an equity injection from other business partners is not relevant to their business 97 . The firms having a business associate amount to 14% of all the firms interviewed. As expected, larger firms are more likely to move away from a one-owner structure. A family-run business was the most prominent ownership for all firm sizes and all economic sectors. The data in the table above also shows that expansion-growth firms have a higher tendency for a one-owner structure (64%; average: 30%), possibly indicating that local firms are able to survive and grow despite internal funds being reliant on one individual only. The family/ entrepreneurs structure is mostly found in the domestic-growth stage (67%; average: 56%). As explained earlier, the involvement of other firms/ business associates is quite limited across the board (14% across all stages). In terms of sectoral analysis, the family ownership structure emerged as the preferred structure in all sectors. However, the “other services” sector was more likely to incorporate other firms/ business associates in their ownership structure (29%, average: 14%) – this was especially the case with professional firms. On the other hand, none of the Life Sciences/ICT firms interviewed had any third party involvement (i.e. from other firms or business associates). The size of the firm was also a determinant of firm ownership structure, as “Medium” SMEs are less likely to have a one-man ownership structure (13%, Average: 30%). In fact, these firms were more likely to take into consideration third party equity from other firms/ business associates (27%, average: 14%). 5.2.2 Q2: Can you kindly provide an indication of the current source/s of your funding? This question gives an indication of the type of financing currently being adopted by local firms, independently of the purpose for funding. Each respondent could provide more than one reply. It is pertinent to note that the “Family/friends” in this question does not overlap with the previous ownership structure question. In this question, interviewees were asked whether families/friends that were not owners from the inception of the business have provided additional finance. 97 European Central Bank (2012), SAFE tables – 2011 (Excel file). For 80% of Maltese respondents, an equity injection from third parties as an additional source of financing was never relevant to their firm. The EU27 average was c. 79%, mainly due to the responses provided by a number of other countries (> 70% for Austria, Bulgaria, Czech Republic, Germany, Ireland, Italy, Latvia, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and the UK). A greater willingness to accept third party equity was observed in the Nordic countries (non-EU Norway – 26%, Denmark and Sweden – 35%), Lithuania (46%) and France (48%).
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Market Gaps on Access to Finance - Bank of Valletta

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