Financing Problems And Risk Releasing For Microbusinesses

Microbusinesses are a basic and important part of market economy. The number of microbusinesses is very large. Microbusinesses play an essential role in promoting employment and economic development. In recent years, the shortage of money that microenterprises are faced with has been brought into sharp focus. Microbusinesses are always in desperate need of small amount of money for a short term. But a microenterprise cannot get money from banks because of its small scale and its high uncertainty, and because it is at the beginning stage of development. Financing is an issue in the area of economy; however, traditional and classical financing methods cannot provide the products that microenterprises need. From the perspective of social network, this article concerns with the financing problem of microbusinesses, and tries to find the reasons lying in the issue. Besides, we are going to see if the new financing methods combined with social network can work effectively.Microbusinesses lack enough "hard information", which is the tough problem between enterprises and banks. We can say that, is the main reason blocking microenterprises get loans from formal finance institutes. Fortunately, social network can provide "soft information" about microenterprises, which can overcome the problem of information asymmetry effectively. And that is the advantage of relationship lending. Another way called "group lending" has been proved effective in reducing poverty by the world practice. That’s due to the group network which can pass information and avoid problems caused by asymmetric information.This paper discusses the financing problems of microbusinesses from the perspective of social network innovatively, and investigates the reality with the method of depth interview, which is the method in sociology. Using the content of depth interview, we describe the role of social network in microbusiness finance without formal finance means. This paper will discuss the financing problem of microenterprises to see what kind of role social network can play in the process. We will talk about the following questions, first, the probability of seeking relationship lending on the basis of relations between the enterprise and the bank. Second, the advantage and the mechanism of group lending. Third, we collect the reality of microbusiness finance using the method of depth interview, investigating the role of social network, getting the primary information about social network’s help.The research method of this paper is literature review and depth interview. We first talk about the status quo of microbusinesses’finance in China. One aspect is the support of the government; the other aspect is the practice of micro finance in China, that is, commercial banks build up financing network whose heart is a big venture, to give loans to microenterprises. The second part of this paper is literature review of relationship lending and group lending, which focus on strong ties, weak ties and social capital. The third part of this paper is depth interview. In this part, we comb the interview content according to the previous literature review. In the last part, we try to give advices to microbusinesses and government to work better on the issue of financing of microbusinesses.This research finds that formal finance doesn’t provide service that microenterprises need in practice. When microenterprises lack money, they can only live on their own, depending on their social network and social capital for help. Strong ties come first, like parents, relatives and good friends. But help from strong ties are limited. By contrast, it is weak ties that can bring massive information and more resources to enterprises. If microbusiness can build up good relations between banks, it can gain loans from banks because banks have opportunity to get private information about the enterprise. To microbusinesses, it is not easy to build up relations with just one bank, not mentioned with multi-banks. So, multi-banks problem seems to be not important for microbusinesses. In the region that we investigated, micro entrepreneurs are trying to form a chamber of commerce of their own, hoping to apply large loans from banks in the name of the chamber. Subsidies from government for those enterprises always are always late for entrepreneurs, so subsidies help a little. However, the platform provided by the government for entrepreneur has brought abundant social resources, which benefit micro entrepreneurs a lot.