Independent expert interview - Denis Ferrand's point of view,
founder of Rexecode, Research Centre for Economic Expansion and Business Development,
on SMEs financing

How do you rate bonds private placement in the financing solutions panel?

In the financing panel, what is very interesting is to assess the ability of companies to access the financing solutions. When we ask SMEs, they tell us that in reality they do not have so many equity and equity problems, this problem is rather solved, there is not a major issue. On another level, that of access to bank financing, we realize that there are opportunities to access cash financing, financing for investment, which today are not particularly difficult. But we also know that there is the antecedents of 2008 / 2009 when, all of a sudden, the ground disappeared under the footsteps of business leaders who found themselves deprived of access to financing, at a time when they needed it most. There is also a memory effect that plays a role for business leaders. And in a way, the complement of the financing arsenal through a private bond is a very relevant tool for the entrepreneur because he diversifies his range of financing methods and does not dilute himself as he could do through an equity. It also has access to financing that appears more certain, as banks are faced with increasingly stringent regulations that limit their ability to intervene. The private bond therefore truly completes the entrepreneur's arsenal to be able to move towards a little more growth.

How do you explain the fact that SMEs make very little use of this source of bonds financing even though the needs are immense and there is a lot of money available?

Until now, SMEs have not given much thought to the question of this type of financing, probably because they are used to using their bank: Financing is highly intermediated in Europe in general and in France in particular. The role of the bank in financing is still very important, but precisely because nature abhors a vacuum and banks are constrained in their financing capacity, we must also think about other financing methods: Will I turn to equity at the risk of diluting myself or will I not seek alternative solutions? So there is a question of habit, but there is also probably a question of ignorance. And yet, when we look closely at the situation of SMEs, we know that there is always a problem with the relay of financing. The first rounds of financing, which make it possible to launch the company even before it has begun to generate turnover, are followed by bank debt, at a time when operating conditions are better established and results can be achieved. These two key moments are the well-marked moments of the issuance of shares and debt. And then there is all that we call the « valley of death » that companies have to go through, which is the one where the company will not raise new equity funds without yet having access to bank credit. Isn't the purpose of private bonds financing to shorten this very crucial period? This is where the private bondholder can complement, in a way, the range of financing available to SMEs.

From your point of view, would it be desirable for this type of financing to develop in the same way as what is happening in Anglo-Saxon countries?

It is true that when it comes to financing, it is often the Anglo-Saxon countries that give us the direction. We must not take everything they propose, let us remember, of course, the past crises which have been extremely violent and from which we have partly escaped. We probably do not need to repeat everything from the choices made by the Anglo-Saxons, but there are also things that work and among these things that work, the private debt appears as a financing method that we must look at strongly because it is a condition for SME growth. We know that in France there is a pool of dynamic, innovative SMEs that are able to project themselves outside but are a little too small. We also know that we have a real problem in France when we look at the structure of companies: on the one hand, there are many large companies that are efficient, capable of projecting themselves, very internationalized and, on the other hand, many SMEs. And, in between, we have a host of intermediary companies, some of them very efficient, but in extremely small numbers. Anything that will enable SMEs to take a step forward and move a little further outwards and capture the conditions for growth is welcome. From this point of view, the bond debt can be a good solution for SMEs, but also for the investor because it allows him to complete the arsenal of financing tools he deploys to companies. He is less in the risk taking that pure equity provides him, while remaining on the search for a return that can be a little more regular, and with companies that have already given some guarantees of ability to grow, to innovate and to project outside.