A Study Of SME Financing In Taiwan

Since 1990, entrepreneurship has been widely regarded as the key to present and future the economic development. Without it, firms are gradually eliminated through market competition. Experience shows us that small and medium enterprises (SMEs) are more efficient and flexible and are becoming increasingly important players in national economic development. SMEs are facing serious difficulties in regards to their continued existence and operations, however, as a result of their inability to attain financing as well as recent banking crises that have taken place in various countries. Early academic research emphasized substantial business analysis, including studies on the competitive strength and development of SMEs. Recent research focus, however, has shifted to financing SMEs, but few studies have been made due to a lack of SME financing behavior data.Data on seasoned equity offerings (SEO) and bank loans (loans) to Taiwan enterprises between 1997 and 1999 was collected for this study. The researchers applied annual increments of SEOs (or loans) to capital (or sales) ratios to establish the relationship between such factors as ratios, stock indices, and NPL ratios. Furthermore, samples were grouped into two types─SMEs and large enterprises, to determine whether or not these ratios are lower in SMEs than in large enterprises. In-depth research was also made into SME financing behavior in various situations to determine any differences, including public vs. private markets, listed vs. unlisted markets, industry categories, capital, and sales.Furthermore, we investigated the relationships between loans, loans via the SBCGF, and guaranteed amounts offered by the SBCGF to understand to what extent the Small and Business Credit Guarantee Fund (SBCGF) helps SMEs obtain bank loans.The empirical results of this study are as follows:1. For enterprises as a whole (including large enterprises and SMEs), a positive correlation exists between SEO/capital ratios and stock indices as well as SEO/sales ratios. The correlation, however, is weaker in SMEs than in large enterprises. 2. For enterprises as a whole, a negative correlation exists between loan/capital ratios and NPL ratios as well as loan/sales ratios. The correlation, however, is weaker in SMEs than in large enterprises.3. The SEO/capital, SEO/sales, loan/capital, and loan/sales ratios of large enterprises are higher than those of SMEs.4. Large enterprises have higher secured loan/capital, secured loan/sales, unsecured loan/capital, and unsecured loan/sale ratios than SMEs. Unsecured ratios among large enterprises are especially high as compared to SMEs.5. The assistance supplied by the SBCGF in providing SMEs in acquiring loans from banks is significant. The ratios of loans to secured loans for the years 2005-2009 are 47.46%,47.11%,47.75%,46.29%and 47.24% respectively.6. Private SMEs have higher secured loan/capital and secured loan/sales ratios than public ones. This may be attributed to SBCGF assistance.7. Public SMEs have higher unsecured loan/capital and unsecured loan/sales ratios than private ones.8. Listed SMEs have higher SEO/capital and SEO/sales than unlisted ones.9. SEO/capital, SEO/sales, loan/capital and loan/sales vary with industry, capital, and sales categories. Based on the above findings, we would like to offer the following suggestions to government authorities, banks, and SMEs. A. Suggestions for government authorities1. Establish a new financing market for SMEs or study the feasibility of lowering application standards for listed companies.2. For the SBCGF (1) Government authorities can consider allocating extra money to the SBCGF or request that banks donate to the SBCGF to increase the scale of the SBCGF. (2) Assist SMEs in obtaining short-term operation funds. We recommend that the SBCGF study the feasibility of establishing a system of credit guarantee using SME promissory notes. (3) The SBCGF can increase the size of revolving funds (under 300 million) given to finance SMEs. 3. Enhance the functions of the SME Innovation Incubation Center. The Executive Yuan Development Fund, for example, can help SMEs solve financing problems.4. Authorities can subsidize relevant expenditures to encourage SMEs to take credit rating appraisals.5. Provide educational training opportunities for CEOs and financial officers to enhance the accuracy and transparency of financial reports and financial operation processes. B. Suggestions for the banks1. When making credit policy, bankers should pay heed to SME loan needs. Officers, for example, can set appropriate credit-granting ratios for SME loan applications.2. Banks should train employees in industrial and macroeconomic analysis so they can study the dynamics of various industries, thereby eliminating the over-dependency banks have on collateral in credit granting.3. Banks can make use of the Internet to integrate services into single windows to provide SMEs with better services. C. Suggestions for the SMEs1. Employ certificated accountants to strengthen their accounting systems, so as to enhance financial statement transparency and creditability.2. Use various financial instruments, such as issuing stocks, bills, and corporate bonds to reduce the cost of financing, to obtain financing.3. As the Financial Institution Mergence Law is now in effect, SMEs should accordingly make adjustments in their relationships with the banks they deal with to minimize any potential impact.