Research On Private Equity Fund Financing Of Small And Medium - Sized Enterprises

Entering the twenty-first century, private equity fund, as the third major international financing tool following public issuance of stocks and bank credit, has been developing rapidly in the whole financial market. It has become an important way to obtain low-cost financing and introduce advanced management technologies for enterprises with development potentials. Under this background, the development of private equity fund has become necessary for small and medium-sized enterprises; at the same time, struggle happens among various parties of interests in the fund’s financing and investing processes, but relative research on this aspect is scarce. Small and medium-sized enterprises often starve for capital during their development and growth. However, under a social and economic context where financing channels are unitary, those enterprises tend to depend heavily on bank finance, leading to risks concentrating too much on commercial banks. Equity financing, bond financing and trust financing cannot meet the enterprises’ financing need for their entering thresholds are too high. Further development of small and medium-sized enterprises in China is constantly under the influence of macro-control policies. Especially in recent years, continuous regulation of small and medium-sized enterprises has become an inevitable trend for the industry’s development. On the other hand, the huge private capital in China is seeking safe and feasible investment channels, paving the way for small and medium-sized enterprises’ financial development.From 2010, China’s private equity financing has been developing rapidly. At the same time, small and medium-sized enterprises’ financing channels are unitary. The problem of relying too much on bank loans has seriously affected the financial security as well as the small and medium-sized enterprises’ survival and growth in China. In this context, it’s urgent for small and medium-sized enterprises to set up new and diverse financing channels which are beneficial for risk dispersal. As an innovative financial instrument, the private equity financing for small and medium-sized enterprises can effectively provide a new financing channel for small and medium-sized enterprises, so as to promote their further development and growth. It’s also beneficial for further reducing risks in the financial system. Besides, it provides a new investing channel for investors, guiding the private capital to rational use. This paper studies the private equity fund of small and medium-sized enterprises. Through a comprehensive use of MM theory, trade-off theory, pecking order and financial growth cycle theory, it conducts a thorough research on relative issues. Combined with case analysis of Focus Media (China) Holdings Limited and Prince Milk Limited, this paper analyzes private equity fund’s operation modes in specific period and background, points out its existing problems and provides optimized countermeasures and suggestions.