Sme Financing Problem

With the reform and opening to the outside, Chinese small and medium-sized enterprises(SMEs) have developed very fast. The prosperous SMEs play an important role in Chinese economy. However, With the changing of macro-economic environment, SMEs are facing with various contradictions and problems, among which difficulty in fund-raising is a key factor. In this article I am trying to study on SMEs' financing.The difficulty in fund-raising of SMEs is universal. The reason is, the cost of SMEs' fund-raising is higher than that of large enterprises, there are gaps in both capital financing and equity financing. Therefore many countries' governments have formulated policies to support SMEs, such as credit guarantee systems, special banks or funds supported by governments. But these theories and measures don't apply to our country entirely, which we can't copy completely.Firstly, since the market economic system is under construction, the lack of fund will last a long period in our country. SMEs are facing with not sound financing environment and narrow channels of fund-raising. In this circumstances they have few choice in fund-raising form and quantity.Secondly, the foreign theories are mainly based on existing economic and financial system, and about particular methods of fund-raising. China is in the process of economic transition. The non^>ublic-owned SMEs have developed fast, while the reform of financial system, in which the government still plays a leading role, is comparatively slow. The financial organizations can't meet the needs of SMEs, because the systems and scales of them are not suitable. The financial organizations lose some enterprising spirits meanwhile they prevent the financial risks. The state-owned financial organizations are not willing to raise funds for SMEs.This article comprises six chapters.Chapter 1, introduction, discusses the significance of studying financing of SMEs. It states that the prosperity of SMEs is an irresistible trend in world economy. In the world today a lot of high-technical SMEs have been established, which have more advantage over large enterprises, because capital of intelligence produces more and more effects in information times. In China it is difficult for SMEs both in internal and external fund-raising. It is necessary to study the contradictions and problems of SMEs' financing, and to find out origins of these problems and solutions to them.Chapter 2 reviews theories on corporate financing structure, which gives theoretical support for SMEs financing study. MM theory, the western classical theory on financing structure, discovered the meaning of the structure of various fund-raising type and the value of debts in fund-raising. It pointed out that in pursuing the goal of maximum corporate market value, the sequence of rational corporate financing is: internal fund-raising, bonds and stocks, if the effect of bankruptcy cost, agency cost and information asymmetry were taken into consideration.Chapter 3 discusses SMEs' difficulties in fund-raising. On one hand, in listed capital marketsthe commission of small issuing is too high to have enough economic results, leaving SMEs in difficulties in getting into capital markets; On the other hand, for banks the cost of information collecting, processing, supervision to SMEs is high. Therefore, the sum of capital and debts that SMEs demand is higher than that financial sectors want to provide. The balance is called financial gap. To reduce the loan gap, governments should provide schemes of credit guarantees and funds support. However the equity gap should be reduced by introducing venture capital.Chapter 4 discusses the financing models in western countries in the perspective of international comparison, analyses their support policies to SMEs' fund-raising and points out their implications in China.Chapter 5 analyses the financing behavior of Chinese SMEs. Since reform and opening to the outside, the economic system has been transformed from planned economy into market economy. This transform...