Study About The Structural Causes And Countermeasures Of The High Financing Costs Of SMEs In China

SMEs play an important role in China’s national economy, which not only account for 99% of the industrial and commercial registered enterprises, but also occupy a necessary position in promoting the growth of economy and solving the employment issues. However, there are a lot of problems in the development of SMEs, especially the high financing costs, which have become a significant obstacle to the SMEs as well as the national economy.Using the research methods of theoretical analysis and empirical research, combined with qualitative analysis and quantitative analysis, this paper first reviews the related theories about financing cost in order to get the enlightenment for Chinese SMEs. Then this paper analyses the current financing situations of Chinese SMEs to explore the structural causes of the high costs of financing. Based on this, this paper puts forward suggestions to solve the problems from three aspects of economic system, financial situations and SMEs themselves.In external financing, SMEs in China obtain the funds required for the enterprise development mainly through direct and indirect financing. At present, more than 50% of the money comes from SMEs’own funds, followed by the bank credit and folk lending while equity financing only accounts for a small part of it. Therefore, in the case of asymmetric information, the financing order of SMEs in our country is mainly internal financing, bank loans, folk lending, equity financing and bond financing.The study shows that there are many components in SMEs’ financing costs which can be classified into explicit costs and implicit costs. In the explicit costs, the direct and indirect financing costs include two parts, namely the costs of obtaining funds, such as underwriting fees, sponsorship fees, mortgage fees, assessment fees, etc., as well as the costs of using funds including cash dividends, interest expenses and so on. The implicit costs include agency costs, financial crisis costs and other costs. Through the study, we found that direct financing costs are generally higher than the indirect financing costs. And the costs of obtaining costs are usually higher than the costs of using funds. In a word, the financial costs of SMEs are much higher and more complicated compared with the large enterprises. Specifically, in equity financing costs, outlay cost is less than 1% while the cost of retained earnings is around 15% in average. In the stock issuance fees, underwriting fees occupy a very large proportion, followed by the sponsor fees and both accounting for the proportion of the financing costs reached nearly 90%. The debt financing cost is relatively low accounting for about 4.5%. Among the bank loans, the mortgage financing cost is the highest for about 10% while the lowest cost is credit loan for about 7%.The reasons for the high financing costs of SMEs are mainly made up of the macro and micro factors. The macro factors refer to crowding out effect and soft budget constraint caused by economic transition as well as the discrimination of ownerships of the financial system. For micro aspects, the main reason is due to the problems existed in the SMEs’ basic property, the corporate governance and financial standing, such as the small scale, the high risk and so on.Based on the reasons for the high costs of financing of SMEs, this paper provides some advices to reduce the financing costs for SMEs. We can take measures to deepen the reform of economic system and establish the financial system adapted to SMEs. In addition, improving the overall quality of SMEs can also help to cut down the financing costs.