Bond Financing: A Potential Solution To French SME-SMIs Actual Financing Issues?

This paper reports a qualitative study about Small and Medium Enterprises’’ financing. Itmainly focuses on bond financing and aims to describe and analyse the actual use of thisfinancing instrument in France. This study has been driven by the following reflectionways:1. Does the current economical context favour the bond’s development in these Frenchcompanies?2. What are the characteristics of a bond issue, how can it be interesting for companies andwhat are the risks related? We tried to determinate a company profile that would fitperfectly with a bond issue.3. How can we explain the slow development of bonds in France compared to USA orGermany? What are the barriers and solutions implemented in order to enhance thisfinancing way to SMEs–SMIs?The literature review clearly shows that the current economic crisis forced companies torethink their financing strategy. Classical financing ways, bank debt and stock markets dono longer satisfy companies’ financing needs for supporting their growth. For costs andavailability reasons, companies (especially small size ones) are forced to explore newfinancing ways and to solicit private savings. The tightening of financing conditions andthe important changes in the legal framework have turned bonds into a seducinginstrument for SME-SMIs.Nowadays bonds can take a large range of forms to adapt to companies’ characteristics andstrategies. As it allows to receive coupons during its life period and can be quoted on amarket, bonds are frequently compared to shares. A fixed amount allowance atdetermined dates over its lifetime contributed to the common idea that bonds are generallymore secured than shares. However, bond financing is not adequate to all companies’ types, and bond issuing can be a difficult and complicated process for small sizecompanies. In order to enhance bond development, New York Stock Exchange hasimplemented various innovative solutions: European private placements (Euro PP) andInitial Bond Offering (IBO) processes have been settled in order to facilitate SME-SMIs’access to bond financing.Unfortunately, these initiatives have met a limited success in France due to somecharacteristics proper to the French economy. USA and Germany have been much moredeveloping bond financing and it is now as strong as other financing ways in thesecountries.