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Financial Support to Enterprises – Tools Provided by Public Sector (Andrus Treier)
 

Financial Support to Enterprises – Tools Provided by Public Sector (Andrus Treier)

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Slides from Connect Estonia seminar CONNECT WITH THE SMART MONEY, on August 29, 2006.

Slides from Connect Estonia seminar CONNECT WITH THE SMART MONEY, on August 29, 2006.

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    Financial Support to Enterprises – Tools Provided by Public Sector (Andrus Treier) Financial Support to Enterprises – Tools Provided by Public Sector (Andrus Treier) Presentation Transcript

    • Public support is needed and reasonableAndrus TreierCEOKredEx17 August 2006
    • Biggest fears and worries• Too big risks to start business - low entrepreneurship, 65% prefer not to be entrepreneurs• Hard to find seed capital and other financing - start-ups, small companies, loss bearing companies• Fear to share knowledge• Fear to loose control over business - only 27% of SMEs are willing to take in other investors• Loan is expensive (and you sell your sole) - 60% of enterprises utilise retained profits for investments - Companies utilising loans grow 50% faster• Estonia is a small country
    • Start and growth need money Based on: M. Cardullo, “Technological Entrepreneurism”, Research Studies Press, 1999
    • Investment Flows E Government Angel Institutional Investors Investors Investors E E/D E Business Venture & Private Angel Equity Funds Networks E E/D E/D E/D D Entrepreneur Enterprise Banks E/D E/DE = Equity Investment FFF BanksD = Debt Based on: M. Cardullo, “Technological Entrepreneurism”, Research Studies Press, 1999
    • Financing sources • Seed capital• Loans• Mezzanine financing, quasi equity• Venture capital • Own cash flow • Business partners • Grants, subsidies, incubators etc
    • Bank loans• Strong and steady historical cash flow, easily projected in the future• Sufficient collaterals (1.5x market value)• Good relations with bank• Loan < 3x operating cash flow (EBITDA)• Clear and positive future expectationsUsed:Usually for expansion, occasionally for buy out
    • Mezzanine Financing(Quasi Equity, Subordinated Loan)• Strong and steady cash flow• Positive future expectations• No collaterals, bank not willing to grant loans• Loan < 5x operating cash flow (EBITDA)• No intervention in ownership• Not more than 50% of the owners equity• Not possible, if growth prospects are modestUsed:Usually for buying out and enlargement of the business
    • Owners Equity• Current cash flow insufficient• Future vision must be clearly positive, even if uncertainty is big• No collaterals• Strong intervention in management• Highest price!Used:Starting, buying out or expanding the company
    • Impact to cash flow and P/L• Bank loan: low price, principal payments and interest to be paid• Mezzanine financing: medium price, interests to be paid, can be related to success, principal payments flexible• Owners equity: high price, no direct impact to P/L, no principal payments
    • Combining instruments makes bigprojects work• EBITDA= 1 millionFinancing• Bank loan 3 millions• Subordinated loan 2 millions• Owners equity 2 millions• Total 7 millions
    • Different state organisations do existDebtors (Export Credit Agencies)• Short term export guarantees (up to 90% for commercial risks)• Long term export guarantees (up to 100%, capital goods)Bank Loans (Guarantee organisations)• Additional guarantee replacing or in addition to collaterals (up to 75%)Mezzanine Financing• Different products provided by the state organisations, additional to private financingEquity Financing• State owned/participated Venture Capital FundsGrants• Knowledge based, high tech projects, infrastructure, incubators, training, consulting etc
    • State organisations in Estonia• Enterprise Estonia » Grants and awareness programs » Incubators• KredEx » Export guarantees » SME loan guarantees » Equity financing » Housing loan guarantees• Estonian Development Fund (?) » Public VC fund for seed capital investments
    • Start and growth need money Development Fund Equity Loan Loan and Leasing Guarantees Start-Up Loan Export Guarantees Based on: M. Cardullo, “Technological Entrepreneurism”, Research Studies Press, 1999
    • What is KredEx?• A self-sustaining guarantee fund that offers: » Export guarantees 50 MEUR guaranteed in 2005 » SME guarantees 27 MEUR outstanding in 2005 » Equity financing 3 MEUR estimated 2006 » Housing loan guarantees 44 MEUR outstanding in 2005• Our aim: » Export guarantees » To raise competitiveness of Estonian companies by improving financing possibilities and mitigating credit risks » To enhance living conditions in Estonia by widening financing possibilities and promoting energy efficient behaviour• Established: » 2001• Owner: » Ministry of Economic Affairs and Communications
    • Loan guarantees help to get loanand mitigate risk• Up to 75% of principal amount• Max amount EEK 15 million• Working capital and investment loans, bank guarantees• Guarantee »fee 0.4-3.0% pa Export guarantees• Conclusion fee 1%• Start-Up loan 30% of personal surety, no other collaterals Up to EEK 500 thousand
    • Equity loan helps companies to grow• Loan amount EEK 1-16 million• Maturity 5-10 years• Owners equity less or equal• No intervention to management, convertability option• No collaterals needed• Long grace period, flexible chedule• Subordinated loan• Interest rate about 20% pa
    • Why state should interviene?• Low or no profitability• Creation of market with “normal” conditions• Reducing fears and changing understanding• Mitigating risks in economic downturn
    • ContactCredit and Export GuaranteeFund KredExPärnu mnt 67b Tel: +372 6 819 95010134 Tallinn, Estonia Fax: +372 6 819 951E-mail: kredex@kredex.eewww.kredex.ee