What is a SME IPO?

However, small and medium enterprise initial public offerings, or SME IPOs, offer investors a great chance to contribute to the expansion of potential small and medium-sized enterprises. In this article, we will try to understand SME IPOs, their characteristics, how to apply for them.

Meaning of SME IPO

SME IPOs are Initial Public Offerings (IPOs) issued by small and medium enterprises, just like a typical IPO. Generally, smaller companies are involved in SME IPOs. When private financing is no longer able to meet their financial needs, SMEs that receive funding from investors apply for IPO. Following the IPO, SME stocks are exchanged on the stock market. By purchasing their shares, the general public can invest in the SME.

Smaller businesses looking to enter the public markets can participate in SME IPOs, which are tailored to their needs and follow a similar process to traditional IPOs regarding regulatory criteria and investor subscription. Companies can raise inexpensive financing on the capital market with the help of an SME IPO. It gives the businesses an infusion of funds and aids in their expansion.

Difference between traditional IPO and SME IPO

The basic difference between an SME IPO and a mainboard IPO is an SME IPO typically requires a minimum of Rs. 1 crore in post-issue paid-up capital, whereas a mainboard IPO needs a minimum of Rs. 10 crores. Furthermore, the SME IPO platform has a cheaper listing fee than the mainboard platform.

How to apply for SME IPO?

Eligibility Criteria for SME IPO

Before applying for an SME IPO, let us understand the eligibility criteria. The requirements for SME initial public offerings (IPOs) may change based on the jurisdiction and regulatory environment. Nonetheless, the following are some typical elements considered by SMEs looking to go public via an IPO:

Track record: No matter how the SME is incorporated—proprietary, partnership, private limited, public limited or otherwise—it needs to have data going back at least three years before submitting an IPO application.

Business Turnover: In certain instances, the company must have demonstrated operating profit in at least one of the three years prior to the SME IPO, proving profitability on an operating basis during that time, to be eligible.

Net Tangible Asset: A company usually needs net tangible assets to become listed through an SME IPO. For example, in India, an NTA of at least 1.5 crore is required for SME IPO. Once the requirements for eligibility are satisfied, a group of professionals can help with the SME listing procedure.

Contract and Lawful Needs: A contract between the NSDL and CDSL, India's two depositories, is required. Additionally, during the previous three years, the SME cannot have any disciplinary actions pending against it or on its record.

Apart from these, in India, a company's maximum post-issue paid-up capital should be 25 crores or less if it plans to be listed as an SME IPO. The SME must have gotten funding from banks, financial institutions, or the federal or state governments if it hasn't been in business for three years.

A group firm must also have a record of being listed for at least two years on the Exchange's mainboard or SME board. The converted corporation must have a positive net worth and positive cash integration (earnings before depreciation and tax) for any of the previous three years.

How to Apply for SME IPO

Here's the step-by-step guide for investors to apply for SME IPO:

Open a demat account: To participate in any IPO, it is important to create a demat account. Any IPO, including SME IPOs, requires a Demat account to invest. Store your shares and securities in a digital vault with a Demat account. Ensure your Demat account is funded and operational if you already have one. If not, you will have to open one with a Depository Participant (DP) who is registered.

Choose a Broker: Select a trading platform or stockbroker that provides access to SME initial public offerings. Your broker will be of great assistance to you during the application procedure.

Finish the KYC procedure: It is mandatory to finish the Know Your Customer (KYC) procedure before submitting an IPO application. To prove your identity, you must provide certain documents and personal data.

Submit an online application for SME IPO: Investors can now apply for SME IPOs more easily because most are done online. The online application process offered by your brokerage or trading platform will require you to complete some general steps.

Conclusion

SME IPO investment may be both lucrative and dangerous, therefore prospective investors should do extensive due diligence on the business before making a commitment.

Furthermore, it is also essential for an investor wishing to investigate market opportunities to know the application process for an SME IPO.