Theoretical Analysis On Relationship Lending And SME Financing

SME is playing a more and more important role in economy, no matter in China or the world, and to some extent, it is the real energy and motivation of economy. However, there are many difficulties of SME, of which financing is the most significant problem. Taking a long term view, widening SME financing channels to balance internal- external and direct-indirect financing is the eventual target. In short term, given current financial market maturity situation and circumstance of China, while considering SME's inherent characteristics, bank-lending will continue playing a key role in SME financing."Financial Gap" of SME had become a severe phenomenon since long time ago, for which the basic reason was information asymmetry between bank and enterprise. "Relationship lending" was proven to be an effective way to settle information asymmetry. In this paper, I took a reference to the essence of S-W model, while plus relationship lending in Mr. Zhang Weiying's simplified credit rationing model to analysis that by settling information asymmetry, relationship lending could narrow the real "Financial Gap" of SME.By analyzing two enterprises' investing action towards "relationship" with bank, while using dynamic analysis to give cost-benefit comparison of them, I made a two period model, by which, the different effects in respect of "credit availability", "financial cost-benefit" and even "long term growth" of the two enterprises was shown in the tables because of "relationship".Small bank has advantage in executing relationship lending to SME, in consideration of China's financial system, it is practicable to adjust big banks'capital composition and governance structure, to stimulate innovation in technique and product, while advocating establishment of small and middle financial institution.