2019/2020 : A look back at what experts have to say about private debt financing for SMEs, one year on

Context

First of all, it was a coincidence: private debt as a method of financing developed in France in 2008, in a context of crisis, as Michel Léger, Chairman of the Supervisory Board of BDO France, noted: 'We have to go back 10 years, to the time of the 2008 crisis, following which there was a shortage of traditional bank credit, which encouraged the rise of new forms of financing, such as bonds financing'. A little more than 10 years later, in the context of a new crisis with new sources, banks are on the front line to provide solutions, in particular and above all through the 'PGE', a very significant part of which is guaranteed by the State. But the granting of the PGE is not a right and refusals are beginning to pour in, while there is an explosion in the number of referrals to the Credit Mediator.

And when granted, the EMP is intended to cover sudden and curable cash flow difficulties

Bank financing and bonds financing: not the same thing

Bank loans, and in particular the EMP, are not intended to finance structuring projects, genuine growth, whether organic or external, transmission or development. We find here the line of division which had been drawn by Michel Léger: 'the traditional banking network provides for the financing of the WCR. On the other hand, when it comes to financing a project, whether industrial or for external growth, bonds financing is present', also referring to the transfer files. Denis Ferrand, PhD in Economics and Managing Director of the Rexecode Institute, even presented private debt as a condition for the growth of SMEs: 'The private bond appears to be a method of financing that should be looked at strongly because it is a condition for the growth of SMEs', allowing them to 'cross a threshold and capture the conditions for growth'.

Thus, once the immediate cash flow needs have been met, or, for those SMEs that had sufficient cash flow, it is private debt that would enable them to carry out their development and growth projects.

Repayment in fine

Why did our experts consider private debt attractive? First of all, we know it because private debt is in fine. This method of repayment makes it possible to preserve the cash flow of SMEs, which in the current context of pressure on cash flow appears to be a major advantage.

Flexibility

Another attraction is the flexibility and the possibility to take into account the specificities of SMEs in the structuring of the financing: Marie-Paule Noël, a partner at Jeausserand- Audouard, had also shared with us her experience according to which legal documentation is more flexible than that implemented in bank financings, as banking institutions, often syndicated, have the imperative to comply with sectorial standards that cannot be modified.

A promise of support, expertise and synergies

In addition to assessing the documentation, Marie-Paule Noël had also taught us that the investors were likely to provide more than financial support, but rather real business expertise and that synergies could be created between the SME and other holdings of the said investor. It is also on this precious aspect of accompaniment that Olivier Babeau, President and founder of the Sapiens Institute had insisted :

« An investor will be able to understand the project and be a true supporter of the development project.

Olivier Babeau went even further, identifying private debt as one of the tools for rapid and agile development, essential in the face of the emergence of digital capitalism, which is accelerating increasingly abrupt changes.