The Impact Of Financing For SMEs In Their Growth

Since the reform and opening up, the proportion of small and medium enterprises (Hereinafter referred to as SMEs) in China’s economic structure is gradually increasing, becoming an indispensable part of China’s economic development. But, China’s current capital market as a whole is not perfect and relatively the development of bond market is still lagging behind. What is more, SMEs’ access to low-cost loans from banks is relatively difficult for various reasons. This has led to problems such as financing difficulties and irrational debt structure which general China’s SMEs have encountered with in their development and many SMEs went breakup for above problems. In this context, this paper elaborates the relationship between debt financing for SMEs and its growth, referring to some relevant literatures on debt financing and business growth. Based on this, the paper analyzes the ways of debt financing used by SMEs in reality and their current situation. For further study, the paper constructs a theoretical model to deduce how companies with different risk control ability influence their own growth via debt financing. The paper selects data from the companies listed on Small Business Edition, and then divides them into three groups according to the level of debt risk control ability. The three groups of samples are empirically tested to discuss the influence to the companies’ growth made by debt financing. The results show that, for the companies with strong debt risk control ability, debt financing has played a positive role in promoting the companies’ growth. Conversely, blindly debt financing may hinder the development of those companies with lower ability of debt risk control. As to the companies whose ability is between the above two types, within relatively unstable financial situations, no significant correlation is shown. According to the empirical results of this study, the paper makes some recommendations on debt financing for SMEs. While SMEs try to improve their own governance, the structure of China’s financial markets should be improved externally to regulate and guide folk financing activities.