Difficulties in Raising Finance and Sources of Finance Available for SMEs

范怡純

Abstract：Compared?with?large?sized?enterprises，one?of?the?chief?characters?of?small?and?medium?enterprises（SMEs）is?that?the?scale?is?small?and?the?power?has?been?highly?concentrated.Essentially，almost?any?small?enterprise?manages?their?business?independently.Thus，the?initiative?of?the?operator?totally?determines?the?motivation?for?profits.As?the?operators?are?sensitive?to?the?changeable?market，implementing?the?combination?of?the?right?of?ownership?and?management?control?can?help?operators?either?save?the?supervision?costs?or?make?quick?decisions.However，difficulties?in?raising?finance?have?secularly?blocked?the?development?of?the?SMEs.Therefore，it?becomes?a?key?issue?for?the?growing?of?the?SMEs?that?how?to?effectively?improve?the?financing?situation?of?SMEs.

Key?words：SMEs;restrict?factors;effective?financing?strategies

Initially，we?need?to?analyze?the?restrict?factors?in?raising?finance?of?SMEs.It?can?be?summed?up?in?two?aspects，namely，external?environmental?factors?and?the?SMEs?internal?factors.Only?we?make?clear?of?these?factors?can?we?solve?the?problem.

External?environmental?factors

1.Government?assistance?aspect

For?a?long?period，the?national?policies?often?tend?to?support?large?sized?enterprises，while?pay?less?attention?to?SMEs，which?result?in?the?historical?reasons?of?financing?difficulties?of?SMEs.Large?companies?can?easily?gain?the?fund?from?capital?market?and?money?market，yet?the?threshold?for?SMEs?financing?has?been?increased?a?lot.Thus，SMEs?must?pay?a?higher?cost?to?obtain?loans.

2.Financial?institutions?aspect

（1）The?operation?mechanism?of?financial?institutions?constrains?the?fund?raising?of?SMEs.Under?the?impact?of?the?financial?crisis，to?protect?the?countries?from?further?damage，governments?have?adopted?the?principle?of?prudence.Hence，it?becomes?more?difficult?for?SMEs?to?get?bank?loans?through?credit?guarantees.This?macro-economic?control?method?firstly?poses?the?negative?effects?on?SMEs.（2）It?still?lacks?the?financial?institutions?that?commensurate?with?the?SMEs.In?certain?commercial?banks，there?still?exists?the?size?discrimination?to?SMEs.Besides，from?the?point?of?saving?costs，a?number?of?banks?are?reluctant?to?inject?funds?into?SMEs.Although?some?commercial?banks?are?willing?to?support?the?SMEs，their?capital?ability?cannot?fully?meet?the?needs?of?those?small?and?medium?enterprises，even?restrict?the?development?of?SMEs?ultimately.It?is?one?of?the?main?reasons?for?SMEs?to?obtain?loans?from?banks?and?other?financial?institutions?in?terms?of?the?characteristics?of?itself.SMEs?problems?mainly?exist?in?three?aspects：firstly，the?authority?of?the?business?is?relatively?centralized?and?the?financial?management?is?quite?irregular.It?always?does?not?have?a?systematic?management?model.Most?SMEs?are?“family?company”，so?their?shareholders?and?financial?managers?are?always?likely?to?be?family?members，friends?or?business?partners，which?incur?that?ownership?of?the?business?is?restricted?to?few?individuals，typically?a?family?group.Furthermore，to?pursue?the?maximum?profit，profit?has?been?usually?intentionally?reduced?by?enterprises?in?the?report?to?pay?less?income?tax.Banks?cannot?get?the?true?details?of?business?performance?from?the?report.Thirdly，SMEs?always?own?more?current?assets?instead?of?fixed?ones，even?some?plants?are?rented.Companies?tend?to?have?small?amount?of?registered?capital，as?well?as?insufficient?bank?credit.None?of?these?conditions?meet?the?requirements?of?lending?bank?loans.

Obviously，it?may?be?difficult?for?SMEs?to?raise?fund?mainly?relying?on?bank?loans.

3.Direct?financing?aspect

To?achieve?the?direct?finance，corporate?primarily?issue?shares?of?stock?and?corporate?bonds.As?to?the?equity?financing，the?requirements?of?listing?are?quite?strict，which?makes?most?SMEs?cannot?raise?urgent-needed?funds?through?it.With?the?launch?of?Growth?Enterprises?Market（GEM），those?potential?SMEs?may?benefit?from?its?low?threshold?entering?and?strict?operating?features.Thus，it?probably?helps?SMEs?to?relieve?certain?financing?burden.But?the?GEM?in?many?countries?is?still?in?its?infancy?that?has?some?defects.

4.Legal?system?aspect

Survival?and?development?of?SMEs?has?always?been?a?lack?of?effective?legal?protection.Even?though?legal?protection?in?many?countries?of?the?international?community?to?SMEs?has?certain?preferential?measures，it?is?still?insufficient?in?lending，guarantying?and?listing.Considering?the?limitations，legal?guarantee?systems?for?SMEs?also?need?to?be?improved.

Internal?factors：

1.SMEs?always?lack?modern?business?management?concepts，which?make?them?face?high?risks?in?operating.Typically?small?and?medium?enterprises?are?“family?business”，so?their?shareholders?and?financial?managers?are?always?likely?to?be?family?members，friends?or?business?partners，which?incur?that?ownership?of?the?business?is?restricted?to?few?individuals，typically?a?family?group.The?authority?of?the?business?is?relatively?centralized?and?the?financial?management?is?quite?irregular.Also，it?always?does?not?have?a?systematic?management?model.Additionally，SMEs?have?relatively?high?debt?levels?as?a?whole;so?as?to?let?financial?institutions?assume?higher?credit?risk.Generally，SMEs?have?no?medium?or?long-term?goals?so?that?their?operating?period?is?usually?short（only?3-5?years）.Therefore，they?more?easily?tend?to?bankrupt?than?those?large?sized?companies.

2.The?size?of?SMEs?and?the?low?level?of?credit?restrict?their?finance?raising?abilities.

In?General，corporate?should?have?“5C”?to?raise?finance，namely，character，capacity，capital，certification?and?circumstance.Many?SMEs?have?less?fixed?asset?than?current?ones;even?some?of?their?plants?are?rented.Companies?tend?to?have?small?amount?of?registered?capital，as?well?as?insufficient?bank?credit.None?of?these?conditions?meet?the?requirements?of?lending?bank?loans.Moreover，there?are?large?amounts?of?managing?systems，especially?financial?management?system?in?SMEs?unsound?that?greatly?influence?their?credibility，as?well?as?their?capital?raising?ability.

3.SMEs?often?lack?available?guaranteed?property?mortgages?so?that?they?have?higher?funding?costs.Banks?are?likely?to?prefer?mortgage?of?fixed?assets?for?SMEs?rather?than?current?assets?mortgage，while?the?proportions?of?fixed?assets?in?the?asset?structure?of?SMEs?is?small.It?often?can?be?seen?in?high-tech?enterprises;intangible?assets?that?cannot?be?used?as?collateral?occupy?a?higher?proportion.Thus，financial?institutions?may?think?over?cautiously?to?lend?loans?to?SMEs?regarding?to?its?high?risks.When?SMEs?are?seeking?to?guarantee?institutions，they?may?find?that?most?of?the?duration?of?the?loan?is?less?than?a?year?or?maximum?of?no?more?than?three?years.Additionally，credit?guarantying?institutions?basically?provide?certification?for?short-term?floating?capital?loans?instead?of?long-term?loans?such?as?equipment?investment，which?also?increase?the?financing?difficulty?for?SMEs.

In?response?to?these?difficulties，we?can?adopt?effective?financing?strategies?such?as?releasing?stock，reducing?inventory，tightening?credit?policy，delaying?payment?to?trade?payables，leasing?finance，lending?bank?overdrafts?etc.I?would?like?to?analyze?three?of?the?most?practical?and?beneficial?methods?for?SMEs.

1.Issuing?new?shares

As?far?as?the?internal?factors，an?obvious?alternative?way?to?increase?equity?investment?is?to?issue?new?shares?from?a?long-term?perspective（Peter?Atrill，Eddie?Mclaney，2008）.Although?it?is?an?arduous?task?for?SMEs，it?helps?to?gain?the?most?benefits.This?approach?establishes?a?direct?financing?platform?for?SMEs?that?is?conducive?to?raising?the?proportion?of?equity?capital?in?enterprises.Also，it?improves?the?capital?structure?of?enterprises?as?well?as?their?ability?to?resist?risks，and?expand?the?space?of?development.Simultaneously，issuing?new?shares?is?beneficial?to?establish?a?sound?enterprise?system?and?management?structure，finally?lower?operation?risks?and?enhance?the?innovative?power.It?also?enables?enterprises?to?build?up?brand，and?improve?corporate?image.Of?course，issuing?stock?will?also?bring?new?constraint?to?enterprises.The?nature?of?enterprises?will?become?similar?to?social?public?companies?that?own?thousands?of?social?shareholders.In?order?to?protect?the?interest?of?these?shareholders，listed?company?should?accept?more?strict?supervision?by?departments?of?supervision?such?as?securities?supervision?and?securities?exchange.Meanwhile，these?listed?companies?have?to?accept?the?wide?supervision?by?the?mass?media?and?social?public.

2.Finance?leases

A?finance?lease，as?such?an?arrangement?is?known，is，in?essence，a?form?of?lending.This?is?because，had?the?lessee?borrowed?the?funds?and?then?used?them?to?buy?the?asset?itself，the?effect?would?be?much?the?same.The?lessee?would?have?use?of?the?asset，but?have?a?financial?obligation?to?the?lender-much?the?same?position?as?the?leasing?arrangement?would?lead?to（Peter?Atrill，Eddie?Mclaney，2008）.For?lessee，that?is?SMEs，to?achieve?the?purpose?of?financing?by?using?this?method?may?help?them?to?ease?the?financial?pressure?of?fixed?investment.In?addition，by?means?of?a?sales?and?leaseback?can?also?help?SMEs?to?solve?the?liquidity?shortage?problem.Sale?and?rent-back?means?that?the?enterprise?sells?their?existing?fixed?assets?to?a?leasing?company，and?meanwhile，leasing?companies?leaseback?the?assets?to?the?enterprise.Sale?and?rent-back?method?makes?enterprises?gain?money?successfully?without?affecting?normal?production?and?operation.It?not?only?improves?the?efficiency?of?enterprises，but?considerably?promotes?and?facilitates?the?technical?progress?of?enterprises?as?well.Moreover，there?are?other?leasing?forms，such?as?combination?of?leasing?and?compensation?trade，combination?of?leasing?and?processing?and?assembling?etc.Implementing?method?of?finance?lease?for?SMEs，not?only?can?increase?the?speed?of?introduction?of?equipment?and?technology，also?saves?money?and?improves?capital?utilization?as?well.

3.Seeking?to?venture?company

Venture?capital?firms?tend?to?invest?the?charged?capital?effectively?into?potential?enterprises，and?then?acquire?capital?remuneration?through?listing?of?those?companies.Venture?capital?companies?are?similar?to?investment?companies?except?that?they?face?to?different?customers.Generally，venture?capital?firms?prefer?starting?companies?rather?than?big?sized?companies.Furthermore，those?inexperienced?young?companies?always?need?the?capital?as?well?as?enterprise-pertinent?recommendations，which?can?be?both?provided?by?the?venture?capital?company.

Now?I?would?like?to?take?example?of?Alibaba?group，it?is?quite?a?good?case?representing?the?small-sized?enterprises?transformed?successfully?to?big?company.This?example?has?twice?been?selected?by?the?Harvard?University?Business?School?as?MBA?case?study.Alibaba?group?operates?diversified?Internet?businesses，including?B2B?international?trade，online?retail?and?payment?platforms，as?well?as?data-centric?cloud?computing?services，which?make?every?effort?to?create?convenient?online?transaction?channels.Alibaba?group?was?founded?by?Ma?Yun?in?1999?in?Hangzhou，China.At?that?time，Alibaba?Network?Company?only?had?the?registered?capital?of?RMB?500，000?that?is?a?true?small?company.One?year?later，the?corporate?earnings?started?to?plague?Ma.Thus，he?chose?to?change?the?economic?system?of?the?company?through?absorbing?external?venture?capital?funds，and?transferring?company?shares?to?the?investors.After?taking?this?action，the?company?had?received?a?total?of?25?million?dollars?of?venture?capital?from?Goldman?Sachs?Group?Inc.，Morgan?Stanley?corporate?and?Japanese?Internet.After?that，Alibaba?Company?became?the?leader?among?small?business?trade?web?sites.However，in?the?year?of?2006，many?original?venture?companies?had?withdrawn?their?capital，Alibaba?Company?faced?new?difficulties.To?solve?this?thorny?trouble，Alibaba?group?came?up?with?an?idea?that?listing?and?issuing?the?share?in?Hong?Kong?stock?exchange.With?the?help?of?Softbank?China?Venture?Capital（SBCVC）and?Yahoo?Corporate，Alibaba?tackled?the?difficulty?again.At?the?first?day?of?listing，the?company?raised?fund?of?$?1.5?billion.Now?Alibaba?group?has?developed?into?the?world's?second-largest?network?company?and?successfully?completed?a?management?buyout?of?Yahoo?China.

Nowadays，SMEs?face?the?unprecedented?development?opportunities，as?well?as?severe?challenges.Although?the?financing?difficulties?of?SMEs?have?caused?widespread?concern?all?over?the?world，considering?the?various?reasons?of?this?problem，we?must?take?corresponding?countermeasures?to?different?reasons.Government?can?adjust?the?regulations?to?improve?macro?environment?of?SMEs.Banks?and?other?financial?institutions?may?adjust?the?loan?policy?so?that?ease?the?financing?limitation?for?SMEs.The?most?significant?point?is?that?SMEs?should?improve?its?inner?ability.They?need?to?build?good?images，improve?their?credit?grade，and?establish?long-term?relationship?with?banks.

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