Businesses remain alien to third party financing through share and bond issues, preferring to rely on the more traditional bank loans to fund operations, a study has found.

The biggest handicap to external financing was entrepreneurs’ reluctance to relinquish ownership, according to an Ernst and Young study commissioned by the Malta Business Bureau (MBB).

Only four per cent of those interviewed depended on third party financing to raise capital. Reliance on own funds topped the chart, with 89 per cent saying this was the preferred form of financing.

Overdrafts and credit cards were identified as a source of funding by 70 per cent of respondents while 47 per cent and 50 per cent identified bank loans and trade credit respectively.

The study about access to finance for small and medium enterprises noted the absence of financial instruments such as seed and venture capital funds to encourage start-up operations.

MBB president George Vella told a seminar yesterday that the business community had to do more to understand the benefits of alternative funding models, including share and bond issues.

His observation was shared by Ivan Bartolo, owner of software company 6PM, who took his company to the stock exchange in 2007 with an initial public offering.

“The company listing in 2007 and the rights issue in 2011 provided the turnaround that made it possible for us to expand our services in other markets,” Mr Bartolo said.

He encouraged others in the business community to take the plunge: “The MSE listing has made us all accountable and I know that my family’s investment in the company is protected.”

Mr Vella said the country had to devise innovative funding techniques, adding some initiatives in the past did not work because they were isolated efforts and the business community was not prepared for them.

“We cannot not have venture and seed capital funds,” he said, noting that EU funds were used in other countries to set up such programmes.

EU Funds Parliamentary Secretary Ian Borg urged the business community to come forward with suggestions on how to allocate EU funds for the next programming period from 2014 to 2020.

He said the Government wanted to make a success of EU membership by ensuring the full use of funding coming from Brussels.

In the budget period that ends this year, Dr Borg said only 10 per cent of EU funds were allocated to SMEs through the Jeremie fund, which offered loans at advantageous rates.

Bank of Valletta had partnered with the Government and multiplied the available credit to more than €50 million.

He said the Government would set up an office to help businesses that benefited from EU funds during the implementation phase.

This would ensure that no EU funds were lost.

Bank chief calls for more money to SMEs

A bank chief has urged the Government not to fear allocating more EU funds to small and medium enterprises.

Bank of Valletta CEO Charles Borg said funds channelled to businesses would create a positive spin off in the economy.

Addressing journalists in a briefing on the fringes of a seminar organised by the Malta Business Bureau, Mr Borg said the Government should allocate a higher portion of funds from the EU budget covering 2014 to 2020 to help firms expand and become more competitive.

“We must not fear giving SMEs more funds,” he said.

Mr Borg urged the Government to tap EU funds for businesses as early as possible because two years were lost in the last EU budget.

He said the Jeremie scheme proved very successful despite initial trepidation by the bank.

BOV is supporting a forthcoming study by the MBB on how EU funds should be spent, what new programmes can be created and how to improve the administrative processes to release the funds.

ksansone@timesofmalta.com

Sign up to our free newsletters

Get the best updates straight to your inbox:
Please select at least one mailing list.

You can unsubscribe at any time by clicking the link in the footer of our emails. We use Mailchimp as our marketing platform. By subscribing, you acknowledge that your information will be transferred to Mailchimp for processing.