How SMEs finance their growth and expansion without borrowing
Whether an SME is in difficulty or expanding, it needs funds to meet its needs. Innovation, R&D, supply chain, marketing, securing and retaining skilled talent, strategic sourcing, and anything that supports business growth require funds.
Not to mention the uncertain situation like the pandemic which transformed the situation overnight, throwing some businesses into the black hole wondering how they are even going to pay salary, rent, bills and overheads and protect themselves from the shipwreck?
On the other hand, due to the pandemic, specific sectors saw a windfall of new opportunities but needed funds to capitalize on the local and global boom and meet excess demand. They risk missing the mark.
The fact is, the right funding at the right time can make or break a business.
The Bombay Stock Exchange (BSE) – Small and Medium Enterprises (SME) Exchange provides a fantastic legit platform for SMEs to raise capital through equity injection.
ESB SME platform was launched on 13th March 2012. And 367 SMEs are listed as of 5th April 2022 and have raised capital of Rs 3,897.86 crore and reached net market capital of Rs 50,413, 69 crore.
The pandemic has increased the number of SMEs that have joined the bandwagon. More than 40 SMEs were listed for IPOs from September 2020 to September 2021, which is not a big difference from the traditional 51 IPOs.
Another reason for the growth of the BSE SME exchange is the profitable financial ecosystem. SME Exchange has produced, over a decade, an estimated gross return of Rs 3.4 on every Rs 1 invested.
In fact, many SMEs have turned out to be massive multi-baggers for multiple micro-investors.
Increases exposure, value and credibility
Being well funded without borrowing is the main reason why SMEs join the ESB SME Exchange. However, there are several other benefits.
SMEs can reduce their debt ratio, lower their costs and create a healthy balance sheet, which translates into greater credibility and a better financial situation. Thus, attracting better partners, collaborations, larger investors and expanding the investor base.
Once SMEs are listed, they benefit from better media coverage and public relations. This exposure helps to increase the brand value of the company, create a better profile and thus increase the value and demand for the shares.
Higher standards and ready for the future
Not all SMEs are listed on the BSE SME Exchange, and they must meet certain criteria. This includes, but is not limited to, organization, restructuring and valuation of capital, transparency, a high level of corporate governance, better marker strategy, due diligence, effective communication of the company and the strength of its equity.
For SMEs to be listed on the stock exchange, the preparation is done on several fronts. Therefore, dedicated SME IPO cohorts incubate and accelerate SME’s journey to IPOs.
Ambitious, growth-oriented small business owners see this as an incredible opportunity. SMEs become fundamentally strong and are able to raise their labor standards – by taking the future – along their journey to listing.
It’s a great start for super-ambitious SME owners looking to join the big leagues – the mainstream ESB or ESN. In fact, in a decade, 131 companies have migrated to the motherboard.
(By Videsh K Totaare, MD and CEO, Archers Wealth Management Pvt Ltd)