Financing businesses through the capital market

Soaring inflation and prolonged business inactivity due to the global lockdown have left businesses with huge inventories and a cash crunch, which has also disrupted funding pipelines. Currently, large, medium and small businesses are looking for funds to get their businesses back on track and continue their growth mandate as markets gradually open up.

Thus, local businesses can tap into the vast pool of retail and institutional investors on the stock market to stimulate their growth aspirations.

According to the Director of Absa Securities Nigeria Limited, Akinkunmi Majaro, “Companies are constantly striving to grow. Therefore, continuous access to cash flow and other investment resources is crucial for companies wishing to gain the competitive advantage needed to drive growth.

“Meanwhile, the global health crisis and its fallout are strong indications that access to long-term funding with less stringent requirements is critical to remaining resilient in an austere operating environment,” he said.

Majaro added that “the Nigerian Stock Exchange, in particular, provides access to medium and long-term finance for structured businesses. Absa Capital Markets Nigeria Limited is well placed to assist multinational and local businesses and a wide range of investors to gain a holistic view of the capital market, as well as to guide investors and businesses in making sound investment choices. investment and financing.

Companies would need long-term access to financing to strengthen operating cash flow, drive product development initiatives, improve logistics, expand product promotion coverage, enter new markets and scale operating capacity to pre-COVID-19 levels.

The ability of these companies to easily access funds would have a positive effect on economic growth. This would revamp the job creation capacity of the organized private sector and would subsequently have an impact on the level of Gross Domestic Product (GDP).

Many companies do not repay bank loans when they are in financial difficulty. But the strict requirements of banks and the high interest rate of these loans remain a major challenge that small and medium-sized businesses sometimes struggle to overcome. Fluctuating exchange rates and inflationary trends have further worsened the ability of SMEs to access cheap financing for their operations. It has therefore become clear that companies are looking beyond commercial banks for their financing needs.

Traditionally, throughout the world, capital markets offer an interesting opportunity for companies seeking to raise capital for medium and long-term financing of their activities. The stock exchange serves as a financial intermediary between investors and companies listed on its trading floor. It is considered a business melting pot that connects companies to a large pool of local and foreign investors who are constantly on the lookout for attractive investment opportunities. These investors are concerned with increasing their return on investment and will put their money in stocks that have favorable earnings projections. The advantage for companies on the stock exchange is that they can access significant capital at a lower cost.

Meanwhile, the funding opportunities available on the stock exchange are not limited to large companies. Structured small and medium-sized businesses need financing to meet the initial challenges of the early stages of growth.

Given the resilience of the economy and the cautious approach of traditional small business lenders, it is time to explore the capital market with the aim of accessing long-term financing to take advantage of market opportunities. emerging.

In fact, there are tailor-made platforms that meet the capital needs of the SME sector on the trading floor. The Growth Board on NGX provides an alternative route for small, well-structured companies with growth potential to list on the exchange. Businesses of all sizes can list on stock exchanges to access cheap, long-term equity or permanent capital in the capital market.

As companies fully reopen their economic activities and the African Continental Free Trade Agreement gathers pace, there is hardly a better time for companies to access the opportunities available on the stock exchange to raise cheap capital. long term for their operations.

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