Support Mechanism to Attract Financing for SMEs in Capital Markets

Support Mechanism to Attract Financing for SMEs in Capital Markets

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A new opportunity for Latvian entrepreneurs was presented on 5 March at The Nasdaq Riga bell ceremony – the European Union (EU) funding program to attract capital on the stock exchange. The new instrument offers a wide range of funding opportunities for the issuance of shares and corporate bonds by small and medium-sized enterprises.

Funding program

To promote the attraction of financing necessary for the development of companies in the capital markets, to increase the international competitiveness of merchants, to develop the capital market in Latvia - with this aim a new European Union (EU) fund support program “Support for attracting financing to small and medium-sized enterprises in the capital markets” has been approved.

High stock exchange costs, insufficient knowledge - these and other factors are often cited as the main reasons that prevent companies from using the opportunity to attract financing in the capital markets.

The total funding for the support program is EUR 1 million, of which EUR 0.8 million is intended to support the issue of shares and EUR 200,000 to support the issue of debt securities (bonds). One company will be able to receive a maximum of EUR 100,000 in support of the share issue, and EUR 20,000 in the case of debt securities (debentures).

Support will be available to cover the costs of preparing a company for listing in stock exchange, such as the costs of raising capital (issuer services), the costs of preparing an issue prospectus (or registration document, securities note and summary), the cost of preparing an offer document or a merchant description, related due dilligence expenses, costs of certified consultants, as well as legal, financial, tax, audit, certified consultant costs.

It is important to note, however, that companies cannot manage to get this support without their own co-financing, as EU support will not exceed 50% of the total costs of the company in attracting the relevant financing.

When applicants are selected?

The Central Finance and Contracts Agency (CFCA, Latvian – Centrālā finanšu un līgumu aģentūra), the project administrator, will hold an open call for funding on a quarterly basis. The first round of application for the selection of the support program was announced on March 5. Taking into account the circumstances of the emergency situation due to COVID-19 and other factors, the deadline for submission of project applications has been set until 5 September.

After submitting the project applications, the evaluation commission will have to make a decision on the approval, conditional approval or rejection of the project application within 3 months after the submission deadline. To facilitate the application process, CFCA has published Round 1 documents and materials on its website.

Who is eligible for funding?

Companies registered in the Commercial Register of the Republic of Latvia:

  • “Small and medium-sized enterprises” – enterprises with less than 250 employees and an annual turnover not exceeding EUR 50 million and/or an annual balance sheet total not exceeding EUR 43 million;
  • Companies that have successfully listed shares (i.e. with funding of at least EUR 500,000) or debt securities (bonds) on the Nasdaq Baltic Regulated Market or the Baltic Alternative Market First North no later than two years after concluding the agreement with the CFCA.

Company’s benefits

Before applying for the new support program and submitting a project application, we offer an insight into what small and medium-sized companies gain by listing the company's shares or bonds on a regulated market or the First North market:

  • new investors - an opportunity to develop new products and services;
  • raising capital - additional financial resources for faster growth;
  • recognition of the company - popularity and reliability of the services and goods provided by the company;
  • opportunity to increase equity - an efficient market and an opportunity to promote capital efficiency;
  • competitiveness - rapid development and leading the way;
  • opportunity to develop the industry - with a successful start in the financial markets, the industry represented by the company is growing rapidly.

BDO Latvia - Nasdaq Certified Consultant in the First North market

Finally, it is important to note that a company wishing to include its shares/debt securities in the Baltic Alternative Market First North has to enter into a cooperation agreement with First North Certified Adviser (in case of shares – the agreement with certified advisor must be valid for the whole listing period, in case of debt securities - at least until the securities are admitted to the First North market).

BDO Latvia has been a Nasdaq Certified Consultant in the First North market since 2017. The task of BDO Latvia as a Certified Adviser is not only to assist the company when it has decided to start listing shares/debt securities in the market, but also to advise and monitor the company's compliance with the stock exchange requirements after stock listing.

By Alise Valdemare, Associate, and Linda Lielbriede, Legal Assistant, BDO Law