Sme Credit Evaluation Factors

Banks often deny the eligibility of medium-sized and small enterprises for financial loans in the light of their credit assessment system which is mainly composed by financial indicators. Many domestic economists, therefore, attribute the difficulties that numerous medium-sized or small enterprises encounter in financing to the "bad credit "resulting from limited size of capital, disorderliness of management and backwardness of technology. The practices of the industry of credit guarantee for medium-sized or small enterprises, however, indicate that average default rate of the "bad credit" enterprises is very low, even lower than that of "good credit" enterprises. This undoubtedly poses a significant challenge towards the prevailing perspectives on credit of medium-sized and small enterprises and the existing corresponding credit assessment system. How to understand and assess the credit of medium-sized and small enterprises is the question that the thesis is trying to tackle.Having compared the credit theory of the West with that of the East, I find that western credit theory is characterized as credit in economy, which attaches a great importance to material gain. But in eastern countries the credit theory is represented by credit in ethics, which attaches a great importance to ethical standards. It is, therefore, doomed to failure in practice to assess the credits of medium-sized and small Chinese enterprises, which mainly embody eastern credit ethics, with the western credit theories and principles that are mainly composed of financial indicators.After analyzing the development of the study of credit and credit assessment in this country, this thesis will make research on the following three aspects: the definition and characters of medium-sized and small enterprise; the basic credit theory; and the basic theory on enterprise credit.1. This thesis discusses the connotation and the essences of contemporary medium-sized and small Chinese enterprises. The discussion tries to challenge the traditional definition of medium-sized and small enterprise, which relies on the size of enterprise. A new definition is given according to the competitiveness of enterprise. With a number of examples, the thesis profoundly analyzes the characters of medium-sized and small enterprises in capability, administration and management.2. Through analyzing the basic functions, the history and the range of effectiveness of financialcredit, the thesis reveals the essence of credit-the code of ethics in business activities. Basedon the analysis of credit essence, the thesis indicates the requirements of being trustworthy forsubject of credit-the unification of sense of cognition and abidance in practice. And itdiscusses the contents of credit awareness: honesty, genuineness and fairness, and their influence on subject of credit to be trustworthy, which provide theoretical basis for credit-risk measurementin credit assessment. Based on the research on the interest of credit subject-the motivation oforiginating and developing credit, the thesis discusses the differentiation of credit forms with thedevelopment of society. Furthermore it discusses the forms of credit-economic credit,administrative credit and social credit, which challenges the prevailing perspective that credit is only economic credit.3. Based on the study of basic credit theories, the thesis emphasizes the discussion on the preconditions of enterprises' being trustworthy and the mechanism to make enterprises betrustworthy. The thesis suggests that the internal conditions of the enterprise-the credit qualityand credit capability-are important elements making enterprises be trustworthy, and the credit quality (subjective element) is the necessary condition to being trustworthy and the credit capability (objective element) is the sufficient condition to being trustworthy. These suggestions break through the traditional theories and principles of credit assessment, which are based on financial indicators, and lay a theoretical foundation for framing the enterprise credit assessme...