By: Kimberly Ramkhalawan
April 29, 2022
As more Small and Medium Enterprises look to grow their business, many may find it very challenging to generate capital for business expansion into new markets or investing in Research and Development. Toward this end the NCB Merchant Bank Trinidad and Tobago Limited held a webinar in collaboration with the TT Stock Exchange aimed at promoting the advantages of SMEs putting out IPOs. Eva Mitchell, CEO at the TTSE, urged the medium enterprise sector to join as there were many incentives and tax breaks to benefit from before they expand into the larger corporate sector.
Back in 2012, the then government through its National Budget, its Minister of Finance announced plans by the Government to provide small and medium enterprises the opportunity to raise capital for growth and expansion through a different means. It suggested the local capital market as a way to avoid heading toward banks for loans that may not be development oriented or supportive. This initiative was aimed at targeting development of the local capital market, as part of its thrust towards economic diversification. As a result, the Trinidad and Tobago Stock Exchange (TTSE) established a market for Small and Medium Enterprises (SME Market).
Mitchell sought to highlight the numerous incentives this move has since spurned through the Finance Act 2020, whereby under Section four of its Corporation Tax Act 2014 Chapter 75:02, now states that the rate of tax for an SME-listed company on The Trinidad and Tobago Stock Exchange shall be calculated as zero percent for the first five years from listing; and as a fifty percent tax holiday for the remaining five years ,calculated as fifteen percent of Corporation Tax.
But benefiting from this means that these SMEs must meet a certain criteria company and must satisfy this in order to remain a listed company on the TTSE. Terms and conditions means the issuer and its board must adhere.
Ian De Souza, president at the TT Chamber of Commerce, drew from his wealth of knowledge and experience in the banking sector, expressing his views on why commercial banks may not often be willing to take the risk of investing in SME, as banks often had a responsibility to their clients, and development investment was not part of the average bank’s mandate. And while it is understood that SMEs don’t often go into their business with large sums of cash, as venture capital was hard to come by, he said startups that depend on bank credit for their initial expansion phases soon realize they are very limited in their criteria for accessing such loans. De Souza said an equity injection into the business is often preferred to be in cash and the expectation that security would be available to support the financing requirement is not met. Liquid capital for equity may not be available and while security in a tangible form such as real estate may not be available nor sufficient, leading to SMEs to fail in securing financing for expansion or diversification, remaining small, exposed to competition or fail as a result, with no funding to ride out difficult times, which he says provides for taking higher than normal levels of risk in the targeted growth sectors. But more so, De Souza explained that commercial banks often lend other people’s money, and there is an obligation to other depositors to ensuring banks remain strong, as such kinds of risky lending can lead to a compromised or weakened banking system within an economy.
The Chamber president underscored the SME exchange’s importance to providing access to growth funding that may not be available from commercial banks because of the lending criteria. He says the exchange listing provides a less expensive form of financing as compared to bank financing, as investors do not have a direct cost of funding, as they only have an opportunity cost of funding. Dividend payments are however also subject to performance and the SME exchange also provides a way for persons with surplus liquidity to fund SMEs in a manner that is regulated and supervised by the Securities exchange commission.
This point was also followed by Ramesh Ramdeen, CEO at the Trinidad and Tobago Manufacturers’ Association, TTMA, who shared that many of his membership post the pandemic were in fact looking to the SME sector to grow their business. He shared the importance also of valuing capital in growing your business.
As part of the TTSE’s push for development of SME IPOs, Mitchell unveiled further plans to bring SMEs to the market through its mentorship programme which will come on stream later this year giving interested parties the opportunity to learn more on how investor participation in their business can assist growth.