Applicable Patterns And Risk Pricing Of Technology-based SMEs’ Unsecured Loans

Technology-based SMEs have become new forces of China’seconomy. Constantly raising the technological level in various fields, theSMEs have contributed to upgrading China’s industrial structure andfacilitating the growth of the economy. Meanwhile, the technology-basedSMEs require large upfront investments to support the development oftheir core technology. However, the state of affairs of SMEs’ financing,though improved, is still unable to meet their investment demands.Facing the requirements for economic transformation raised byChina’s12th Five-Year Plan, the high-tech companies will take theresponsibilities of upgrading the industrial structure. China stronglysupports the high-tech companies in government policies, and repeatedlyguide the commercial banks to relax their standards for SMEs’ financing.It is well known that the unified credit rating mechanism andaccurate credit records are lacking in China. Moreover, most tech-basedSMEs in their beginning stage have few assets. The most convenient andpractical mode of financing is credit financing. However, the unsecuredloans are rare for SMEs from large banks, mainly because the risk ratingsystem is not established, the risk exposure is difficult to complement, and there’s no differential pricing of risk. The exposure caused byinformation asymmetry has built strong barriers for the SMEs’ financingfrom the commercial banks.After20years, the earliest established state-level development zonein Shanghai, Caohejing Development Zone, has become a gathering areaof the aerospace information, technology, biomedicine, new energy, andhigh-tech companies, including many SMEs. In collaboration with theDevelopment Zone and the local government, Bank of Communicationshas launched various financing products for high-tech SMEs, and becomeprogressive and innovative. However, how to broaden the channels ofcredit financing for SMEs, with the core technology but few assets, whilecovering the bank’s risk exposure and earning a high return throughreasonable pricing, is always an important yet difficult question.This paper attempts to find a way to broaden SMEs’ financingchannels by studying the enterprises’ credit modes. And with thediscussion of the risk-based pricing model, the paper examines examplesimplemented by the Bank of Communications, which is one of thebiggest five commercial banks in China, in Shanghai’s oldest state-leveldevelopment zone-Caohejing development zone. By analyzing thecollected data, the paper also (i) provides the solutions of applicablepatterns and risk pricing for the tech-based SMEs’ credit loans,(ii) makeseffective risk-based pricing models to raise the bank’s return under controlled exposures, and (iii) finds a win-win solution for both parties.