By Farah Khalique
Bond financing is a popular alternative to bank loans. A company that is too small to issue a corporate bond, which typically is upwards of €250m, can instead issue a smaller retail bond. But retail bonds come with their own set of mind-boggling rules that hinder smaller companies from exploring this option.
The Wealth Management Association is calling for an overhaul of current rules on retail bonds, to allow companies to issue in much smaller sizes than the current norm of €100,000 (£72,000) or above. It is possible for companies to issue less than €100,000 but they must present a dense, time-consuming retail prospectus, as opposed to a standard wholesale prospectus.
The WMA's deputy chief executive, John Barrass, proposes scrapping the €100,000 limit and the need for a retail prospectus, which would potentially make it easier for NGCs to issue retail bonds.
The London Stock Exchange launched its Order Book for Retail Bonds (ORB) in 2010 to much fanfare, with the aim of helping companies raise money by issuing bonds of small quantities. Workspace even issued a £57.5m bond in 2012. But the figures are still a drop in the ocean - this year only two companies have issued retail bonds on ORB for a total of £220 million.
A radical alternative that NGCs might want to consider is minibonds, which are offered by the likes of crowdfunding platform, Crowdcube (find out more here). NGCs can raise as little as £10,000 by submitting an online pitch to investors with a deadline to raise the cash. Mexican restaurant chain Chilango raised over £2 million last year on Crowdcube by issuing a mini-bond in return for 8% interest per annum. They are more risky for investors (who can invest as little as £500), but an innovative form of financing for forward-thinking NGCs.
Farah Khalique is a freelance business and financial journalist, with a keen interest in writing about non-bank financing solutions that can help SMEs grow their business. She has written extensively about banking scandals and has made TV appearances on Sky News and The Wall Street Journal Live to comment on topical issues including money laundering and bankers’ bonuses. Follow her on Twitter