Market Gaps on Access to Finance - Bank of Valletta

Lifecycle stage Current financing needs Current financing options Scope for financial instruments
Growth (Emerging/
Development/
Expansion)
The shift in focus on market growth would require
investment in human resources and strengthening
the organisational structure (e.g. new
departments), automated equipment and
marketing targeted at acquiring new clients and
expanding into new markets/ distribution channels
(including overseas opportunities). In order to
reduce costs, firms in this stage might also be
focusing on production process changes.
A factory may be purchased, or a new branch
established. Outsourcing may also be a viable
option considered to reduce costs. Diversification
into new products might also be considered
(through the acquisition of other businesses or
through organic means) – this would represent the
re-start of the business lifecycle. These changes
can be deemed as risky as the firm would be
starting afresh in new markets, and hence might
require the founder to bring some of the seed
stage and related funding back to the business.
Alternatively, local firms might share the cost of
new projects by entering into joint ventures with
other companies.
According to the survey results, main access to
finance difficulties in this phase relate to raising
internal/ external finance for specific projects/
investments, and also raising external finance for
normal day-to-day operations.
Increased financing needs, especially for
expansion plans and internationalisation
initiatives
Though the firm could be seeing its first profits at
this stage, it is also probably also dealing with
increased demand for its products/ services and
new competition. Hence a new round of funding
might be sought, should profits and the initial
funds not be adequate. Bank financing is likely to
be the first line of attack, potentially facilitated
through the established track record of the
business, as well as national/ EU schemes (e.g.
soft loans, interest rate subsidies, JEREMIE
guarantee-backed loan, SME Development Grant,
and ERDF International Competiveness Grant
Scheme). According to the survey results, half of
the emergent-growth firms have utilised national/
EU grants.
While formal Malta-based private equity remains
inexistent in this firm lifecycle stage, informal
venture capital might be successfully secured
through local entrepreneurs and individuals who
are often seeking investment and further
diversification opportunities.
A firm in this stage and with a potentially
successful track record in its core product/
service might also be able to start looking at
institutional investors. Likewise, the public stock
markets will represent another financing option
that also provides an exit strategy for the original
founders/ initial seed backers/ business angels.
Bank financing becomes accessible
Specialised grant and loan schemes
Lack of equity programmes / VC funds/ formal
business angel networks
Lack of equity investor readiness
Availability of public capital markets
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Assistance to SMEs in this stage remains
important, but is increasingly likely to take the
form of financial instruments rather than grants.
And firms in this stage have a greater readiness/
attractiveness to switch to such instruments, as
evidenced by the take-up for the JEREMIE loan
guarantee product. In fact, more than 80% of
firms in this category would be seeking further
grant assistance from the upcoming
programming period.
Looking forward, there is scope for similar
instruments to the current JEREMIE loan
guarantee product, but with a wider mix. Apart
from loan guarantees, equity guarantees might
also be considered. About one fifth of survey
respondents in this category would be willing to
consider equity from other sources.
A hybrid equity-loan instrument might be an
alternative. In addition, mezzanine funds might
be attractive for firms looking for the security of
bank financing and new ideas which an equity
injection can bring about. Likewise, venture
capital funds and business angels can provide an
injection of new funds/ ideas into existing
businesses.
Significant interest in loan guarantee
financial instrument
Further scope for other forms of financial
instruments – loan, equity, guarantees, or
hybrid forms
Potential for VC funds and business angels
in selected sectors