Rediscovering old financing channels for SMEs: The IPO

The aftermath of the financial crisis and new requirements for the granting of loans by banks present young and medium-sized entrepreneurs with new challenges in financing. An IPO may become more attractive during this period. A look at the factors that often prevent entrepreneurs from going public shows: Banks' covenants are often no less stringent than the requirements of a stock market listing.

Small and medium-sized enterprises need a strong capital base to finance growth. This also makes it possible to respond better to difficult market conditions. As a result of the financial crisis, banks' lending practices are becoming more restrictive, partly due to the decisions taken by the Conference of Central Banks and Banking Supervisors in September 2010 (Basel III). This puts many companies in a tight spot, also against the backdrop of expiring subsidy programs. It is time to look at an established financing channel: the IPO.

No fear of going public

Quite a few entrepreneurs understand the term IPO as a spectre of entrepreneurial anti-freedoms: Too much transparency towards investors, co-determination and loss of independence via general meetings and high financial expenses before going public. These concerns often keep founders and CEOs from taking to the floor. However, when the above points are compared with the terms of today's lending, the question arises as to whether these concerns about a listing are tenable.

Mostly, the first argument is the high transparency obligation towards investors and the capital market in general. Naturally, investors demand a high degree of openness and scrutinize exactly which company they are making their investment in. But the picture is the same on the debt side: Banks also demand considerable transparency from borrowers when granting loans in order to be able to make their assessment. Capital market-oriented companies (KapMU) are also subject to the statutory requirement to post financial statements in the electronic Federal Gazette, where they can be accessed by a broad interested public.