SME Funding
Shaping India’s Future
India’s Micro, Small, and Medium Enterprises (MSMEs) possess immense potential as they are the backbone of the economy, significantly contributing to GDP, employment, and exports.
They fuel innovation, regional development, and entrepreneurship, with government support through initiatives like the MSMED Act and increased formalization boosting their growth. While facing challenges like access to capital, MSMEs are leveraging digital tools, focusing on niche markets, and forming strategic partnerships to drive their expansion and integration into the global economy.
SME Fund Raising
Fundraising is an essential process for fuelling the business growth of a company. After bootstrapping (Use of personal savings and reinvestments) the company, fund raise is important for future scalability of a business.
We help the promoters to devise a proper market strategy to source the required capital through IPOs, Venture capital and Angel investing.
We help the promoters in all aspects like Financial Readiness Assessment, Due diligence support, Legal and Compliance Assistance, Valuations etc. to ensure that the funds are raised in a timely manner.
What value do we Add to the SME Promoters ?
We have been functioning in the capital markets for over 3 decades and have built a strong bridge between SME corporates and potential investors across HNIs, Family Offices, AIFs and several ultra HNI clients who know us personally and are willing to support quality promoters and businesses.
NSE SME Eligibility Criteria
Incorporation
The Issuer should be company incorporated under companies act 1956/2013 in India.
NSE Emerge SME Exchange Listing Requirements
The post issue paid up capital of the company (face value) shall not be more than Rs. 25 crs.
The applicant company must demonstrate a minimum operational history of three years
Promoters or promoting companies, whether incorporated in India or internationally, need to have a minimum of three years of relevant experience in same industry and collectively or individually hold at least 20% of the post-issue share capital
Proprietorships or partnership firms that have transitioned into a corporate structure must have a cumulative operational history of three years.
SME Net worth and Profitability Criteria
Companies which want to apply for NSE SME IPO on NSE SME Emerge must have operating profits (earnings before interest, depreciation, and tax) of Rs 1 crs for at least two out of the three full financial years prior to the application. This change in profitability criteria was approved by SEBI in the month of December in the year 2024. This change is applicable for both NSE SME and BSE SME on the SME platform of stock exchanges of India.
Additionally, companies must have a positive net worth.
NSE has introduced an additional FCFE Eligibility Criteria effective September 1, 2024. Under this requirement, SMEs must demonstrate positive Free Cash Flow to Equity (FCFE) for at least two out of the three financial years preceding their IPO application.
FCFE refers to the net cash available after covering all operating expenses, interest payments, taxes, capital expenditures, and debt repayments.
How is FCFE calculated ?
FCFE = Cash Flow From operations – Purchase of Fixed Assets + Net Borrowings – Interest *(1-T) .
Cash Flow from operations = Cash generated from operating activities.
Purchase of Fixed Assets = purchase of property, plant, and equipment (PPE) including capital work in progress – sale proceeds of PPE including capital work in progress + capital advances.
Net borrowings = Proceeds of Long-term borrowing – Repayment of long-term borrowings + Proceeds of short-term borrowings – Repayment of short-term borrowings.
Interest (1-T) = Interest expense in P/L on short-term and long-term borrowings * (1-tax rate).
IPO applicant has not been referred to the Board for Industrial and Financial Reconstruction (BIFR) or no proceedings are undergoing under the Insolvency and Bankruptcy Code.
The entity has not received a winding-up petition from the Court or NCLT.
The Issuer has not been involved in any regulatory misconduct and no disciplinary action has been taken by a regulatory authority in the past 3 years.
IPO Issuer company must ensure that none of the IPO merchant banker or lead manager’s draft offer documents filled with exchange has been rejected in the last 6 months before the date of IPO application.
The application of the applicant company should not have been rejected by the Exchange in last 6 complete months.
BSE SME Eligibility Criteria
The Issuer should be company incorporated under companies act 1956/2013 in India.
The post issue paid up capital of the company (face value) shall not be more than Rs. 25 Crore.
The Issuer company should have net worth of at least Rs 1 crore for 2 preceding full financial years.
Net Tangible Assets –
The Issuer company should have net tangible assets of at least Rs 3 crore in last preceding full financial years.
The applicant company seeking a listing on the BSE SME Exchange must have a track record of at least three years. If the company has acquired a proprietorship, registered partnership firm, or LLP, the combined operational history of these entities must also total a minimum of three years
The company, proprietorship, registered firm, or LLP must demonstrate operating profit (earnings before interest, depreciation, and tax) from operations of Rs 1 crore for at least two out of the three most recent financial years preceding the application.
Additionally, the company should have recorded operating profit for one full financial year immediately preceding the application date.
Other new norms applicable for SME IPO
OFS portion restricted to 20% of Issue Size.
Selling Shareholders cannot sell more than 50% of their shareholding.
Minimum promoter contribution (MPC) is locked for 3 years. Excess of MPC a) 50% released after 1 year; b) remaining 50% after 2 years.
Loan Repayment - SME IPO Issues can’t use funds to repay promoter loans.
General Corporate Purposes - GCP capped at 15% or Rs 10 crores, whichever is lower.
Related Party Transactions considered material if amounting to 10% of turnover or Rs 50 crores whichever is lower.
Leverage ratio of not more than 3:1. Relaxation may be granted to finance companies.
It is mandatory for a company to have a functional website.
All of the promoter and promoter group shareholding in the company must be in dematerialized form.
It is mandatory for the company to facilitate trading in demat securities and enter into an agreement with both the depositories.
There should not be any change in the promoters of the company in preceding one year from date of filing the application to BSE for listing under SME segment. In case of any complete change in the Promoters or there are new promoters acquiring more than 50% of the shareholding of the Issuer, DRHP can be after completing one year from the Date of such changes.
The Board composition should be in compliance with the requirements of Companies Act, 2013 at the time of In-principle approval.
The Net worth will be calculated as per the definition given in SEBI (ICDR) Regulations.
The Company has not been referred to NCLT under IBC.
There is no winding up petition against the company, which has been admitted by the court.
No regulatory action of suspension of trading against the promoter(s) or companies promoted by the promoters by any Stock Exchange having nationwide trading terminals.
The Promoter(s) or directors shall not be promoter(s) or directors (other than independent directors) of compulsory delisted companies by the Exchange and the applicability of consequences of compulsory delisting is attracted or companies that are suspended from trading on account of non-compliance.
Director should not be disqualified/ debarred by any of the Regulatory Authority.
The applicant company, its promoters, and any subsidiary companies must have no outstanding defaults in paying interest or principal to debenture, bond, or fixed deposit holders.
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