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 C: Bank overdraft, credit line or credit cards overdraft This type of finance is used by all “medium” SMEs, while “micro” SMEs used the overdraft facility less frequently (61%, average: 74%). The use of this type of finance also varied across sectors. The retail/distribution and professional services sectors had the highest usage rate (92% and 82% respectively, average: 74%). Restaurants had the lowest rates of take up for this source of finance (55%). Firms in the start up phase used this source of finance the least (50%, average: 74%). D: Bank Loans Bank loans were also a popular source of finance, used by 64% of total respondents. On the other hand, 34% never looked into this type of finance – this may be attributable to a preference for own financing (used by 89% of the firms interviewed). All “Medium” SMEs used this type of finance, compared to half the micro enterprises. In terms of sectors, the less frequent users of this type of finance were firms in the Life Sciences and ICT sectors (50%, average: 64%). On the other hand, three-fourths of all manufacturing firms utilised bank loans. Start ups were less likely to utilise bank financing (30%; average: 64%), while emerging/ expansion growth firms were the most frequent users (75% and 77% respectively; average: 64%). E: Trade Credit Trade credit was also one of the most prevalent sources of finance, with an average of 65% usage. Micro firms were the less frequent users of trade credit (53%, average: 65%), while small enterprises were the most frequent users (76%; average: 65%). The retail sector was more likely to utilise trade credit (75%, average; 65%). On the other hand, emerging growth firms were less likely to go for trade credit as a source of finance (25%, average: 65%). F: Other loan (e.g. related company/ shareholders, family, friends) This type of finance was not used by many firms (32%), and many firms from the interviewed sample thought that this was not relevant to their firm. This type of finance was mostly used by “medium” SMEs (53%; average: 32%). The Life Sciences and ICT sector, as well as the other services, used this type of finance more frequently (43% and 41% respectively, average: 32%), while manufacturing firms the least (19%, average: 32%). Firms in the emerging growth stage were aided more often by this type of finance (50%; average: 32%). G: Leasing/ hire-purchase/ factoring 27% of respondents had utilised either leasing or hire-purchasing or factoring as a source of finance. This was most likely to be the case with small firms (37%) and less likely to relate to micro firms (18%), tourism/ hospitality firms (23%) and start-ups (20%). H: Equity from other sources (including business angels, venture capital) This proved to be one of the least used type of finance (only 4 respondents), with the main reasons being that respondents did not consider this type of financing as relevant to them or not being willing to dilute their ownership. None of the SMEs responding to the survey were listed, again since the respondents deem this source of financing not relevant to their firm. 5.2.5 Q5: What was the reason for your request being rejected/ only partially met/ your decision not to proceed further? The chart overleaf summarises the reasons provided by respondents to explain why their applications for financing were not taken forward, either by the authority/ institution, or by the respondents themselves (a total of 15 responses). Refusals were generally linked to assistance schemes part-financed by national and/ or EU funds. Some of the reasons provided include: – Respondent did not meet application requirements Page | 50
Malta Business Bureau – <strong>Market</strong> gaps in access to finance April 2013 – Respondent refused to proceed further due to Terms & Conditions – Application rejected due to the risk involved, especially if linked to a start-up Figure 10: Discontinued Applications No. Of Respondents 10 9 8 7 6 5 4 3 2 1 0 A: National Grants/Public aid B: EU Funds EU funds Stage in company lifecycle Did not meet application requirements Refused - Unaccaptable T&Cs Others Base: Respondents that applied for funds bet were rejected/ refused to proceed further 5.2.6 Q6: Would you apply for any of the below types of financing if offered locally? This question asked respondents to provide their preferences in relation to those sources of finance most appealing to their firm. The responses were prompted with a list of sources of finance, including reference to sources which are both currently available in Malta, but also to other sources which are available in other countries but not in Malta (e.g. formal business angels, seed funding, venture capital, and securitised mezzanine finance). Despite the already high dependence on grant funding in certain sectors, respondents still opted for more grants (both national and EU-funded). In fact, c. 80% of respondents were willing to apply (for the first time/ again) for grant schemes. Moreover, 93% of those who already applied for a national grant were willing to obtain more national grants. From those who applied for EU funds, 87% were interested in applying for more funds. This shows that despite the administrative, compliance and cash flow impacts, local firms still demand grants. The figure below again reflects the low preference for sharing ownership through additional private equity financing. In this regard, 65% of respondents showed no interest in obtaining equity from other sources (including business angels, seed funding and venture capital) or in mezzanine finance. On the other hand, 24% were interested; currently, only 4% of respondents use financing through equity from other sources. This may indicate the need for more financing instruments combining elements of a grant, debt and equity. Page | 51
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Market Gaps on Access to Finance - Bank of Valletta

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