In the context of alternative finance, minibonds have established themselves as a capital-raising tool for Italian SMEs, particularly since the introduction of the Development Decree (2012). But in the face of a growing supply, it remains crucial for companies seeking finance to understand when and why this instrument can be an effective choice over bank credit or other forms of structured finance.
What are minibonds: definition and positioning in the funding mix
A minibond is a debt instrument designed for unlisted companies - particularly SMEs - that wish to raise capital from professional investors through an alternative method to the traditional banking channel. It is, in essence, a bond with maturities generally between three and seven years, issued for the purpose of financing business development projects.
The logic behind the minibond is that of bank disintermediation: the company accesses the capital market directly, establishing a direct relationship with institutional investors such as private debt funds, insurance companies or family offices, without necessarily having to go through the credit intermediation of banks.
In most cases, the issue is made through private placement, a modality that avoids the costs and complexity of a public offering. However, it is not uncommon for the security to be subsequently listed - e.g. on the ExtraMOT PRO of Borsa Italiana segment - to increase its visibility and facilitate a possible exchange on the secondary market.
From the point of view of purpose, the minibond is a particularly suitable instrument to support organic growth, finance innovation or internationalisation projects, but also extraordinary operations such as acquisitions, leveraged buyouts or generational handovers. In all these cases, it allows the company to access a flexible and structured form of financing, often complementary to bank credit.
When does it make sense for an SME to issue a minibond?
- When patient and plannable capital is needed
- A minibond is ideal when a company has a structured, medium- to long-term business plan that requires investments that cannot be financed with short-term credit lines.
- It is a preferable solution when one aims to avoid the volatility of bank revolving lines and seeks visibility of future cash flows.
- When the company is financially sound and has adequate governance
- The most credible issuing companies have a turnover of more than 5-10 million, a stable EBITDA margin, and a NFP/EBITDA ratio of less than 3x.
- A formalised governance structure is required, with audited financial statements, active governing bodies and documented strategic plans: elements that reassure investors and simplify due diligence.
3. When bank credit is limited or inconsistent with business objectives
- In contexts of poor access to traditional credit (for sectors considered risky or due to tensions with bank covenants), minibonds become a complementary instrument.
- It may also be useful to rebalance the financial structure, reducing dependence on short-term maturities and improving the DSCR (Debt Service Coverage Ratio).
The competitive advantages of minibonds for corporate management
For a company with a medium- to long-term strategic vision, a minibond can represent more than just a financial instrument: it is an opportunity to strengthen its market positioning, both in operational and reputational terms.
One of the main advantages over traditional bank debt is contractual flexibility. Indeed, the minibond allows the construction of a tailor-made structure, calibrated to the specific needs of the company and its business plan. It is possible to negotiate repayment methods such as gradual amortisation or 'bullet' repayment at maturity, to define ad hoc covenants, to provide for subordination clauses, or to include options for early repayment (call) or extension of the loan (put). This level of customisation is rarely available in the banking world.
Another relevant aspect is that, unlike equity or venture capital, a minibond does not involve dilution of control: the entry of capital does not translate into a shareholding or influence on corporate governance. The management retains full decision-making autonomy while benefiting from fresh resources.
Furthermore, access to the capital market through the issuance of a minibond can have a positive effect on a company's strategic positioning. Being perceived as 'market ready' improves reputation with investors, stakeholders and even suppliers, paving the way for future more structured transactions such as ESG-linked financing, club deal issuances or, for some more ambitious realities, paths towards a stock market listing.
Finally, the presence of minibonds in the corporate funding mix allows for greater diversification of funding sources, which can also prove valuable in relations with the banking system. Banks, in fact, tend to be more inclined to grant credit to companies that have already obtained trust from professional investors and demonstrate advanced financial planning skills.
Costs and risks associated with the issue
Costs
- Legal and financial advisory: a team of experienced advisors is needed to set up structure, documentation and placement.
- Rating or credit scoring: sometimes required by investors, with recurring costs.
- Placement, structuring and listing fees, often exceeding 2-3% of the issued amount.
- High coupon compared to bank debt: return for the investor usually between 5% and 9%, depending on the perceived risk.
Risks
- Technical default: breach of financial covenants (e.g. NFP/EBITDA ratio or interest coverage) even without actual default.
- Contractual rigidity: impossibility of renegotiating terms once the bond has been placed.
- Reputational damage in the event of default or restructuring.
- Limited liquidity, especially if the security is unlisted or held by few investors.
New formulas for SMEs: evolved and accessible minibonds
In recent years, the universe of minibonds has expanded with solutions designed to make this instrument more accessible even to SMEs of limited size or with less sophisticated financial structures. These are 'evolved' formulas that, thanks to the support of public and private actors, aim to reduce entry barriers and mitigate the main risks perceived by investors.
A relevant example is that of basket bonds, i.e. aggregate issues promoted by institutional entities - such as CDP, SACE, SIMEST or the Regions - that bring together several SMEs in a single structured transaction. This method makes it possible to reach a critical mass that is attractive to investors and, at the same time, also allows companies with turnovers of less than 10 million to access the capital market. The distinguishing feature is the presence of public guarantees that not only reduce the risk for the investor but also help to lower the structuring costs for the issuing companies.
Alongside these collective operations, guaranteed minibonds, i.e. issues backed by Confidi, SACE or the Central Guarantee Fund, are becoming increasingly popular. In this case, the partial or total coverage of the default risk makes it possible to obtain more favourable conditions both in terms of pricing and in the structuring of the contractual clauses. For many SMEs, this is a key step towards accessing the market with greater security.
Finally, a significant innovation is sustainability-linked bonds, bond instruments linked to the achievement of measurable and verifiable ESG (Environmental, Social, Governance) goals. Companies that demonstrate concrete commitments - e.g. in reducing CO₂ emissions, improving gender equity or energy efficiency - can issue bonds with conditions linked to these targets. This type of instrument responds to a growing demand from thematic funds and investors sensitive to sustainability criteria, and can represent a strategic opportunity for SMEs wishing to proactively position themselves on the ecological and social transition front.
Strategy checklist for CEOs and CFOs: are you ready for a minibond?
Does your company invoice at least 15 million euro per year?
Do you have a detailed and sustainable three-year business plan?
Do your balance sheets show stable profitability?
Is your governance transparent and formalised?
Are you close to bank credit saturation?
Are you willing to face initial costs and constraints in order to gain flexibility?
If at least four of these five answers are yes, it is time to seriously consider minibonds.