The Small And Medium Financial Institution And SME's Relationship Finance

Relationship finance is a finance method that the investors collect valuable and inoperable soft information, lend money to borrowers under unsure state and get future rent because of the privacy of the information. Relationship finance is a method to solve small and medium sized enterprises'finance difficulty. In theory, finance intermediation theory and credit rationing theory are the basis of relationship finance from the bank and small and medium sized enterprises (SMEs) angles. In reality, relationship finance is the supplement to original finance model that the enterprises'value is only measured by hard information. Under the influence of the present credit environment, relationship finance could be a indirect finance method when SMEs is growing up.This paper does some research on the mechanism of relationship finance. It give some emphasis on the effect of making the information structure perfect caused by soft information. On the basis of thinking that hard information is the basis of making finance decision, the soft information is the supplement to solve asymmetric information problem. It uses a model to make compare between one-time finance and relationship finance. Because of the long-term relationship between banks and enterprises, the cost of fame loss is an effective restrain on SMEs. Under this occasion, to provide true information is the optical option of the enterprises. t can solve the adverse selection and moral hazard problem to some extent in the course of lending to SMEs by financial institutions.This paper does some fundamental research on the provider of relationship finance. Take the organization structure of banks, the locality of banks and competitiveness into account, this paper thinks that the small and medium financial institutions have obvious advantage of using relationship finance to solve SMEs'finance difficulty. Because relationship finance itself has some risks, the banks should transfer and control risks from several aspects such as keeping proper relationship, develop business scope and quantity, in-time control on enterprise, etc.. At last, it does some research on the feasibility of developing relationship finance in our country. We can learn from the experience of American community banks doing relationship finance to develop community banks in our country.