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Small And Medium Sized Scale Enterprise (Sm Es) Finance Sources And Difficulties

2016 words - 8 pages

Small and medium sized scale enterprise ( SMEs ) occupies the crucial position among the worldwide economic activities, particularly in developing country, whose flourish has already became a sign of the rapid development of economy. However, more than half SMEs face the severe challenges of surviving. Among all the possible threats during business activities, inadequate access to capital is the most important factor to determine the enterprise’s destiny (CCH, Australia, 2013). Even worse, SMEs are under the tremendous stress of the financial and economic crises which lead to the depressed consumer market, contractive loan of financial institutions. Given the important place of SMEs in world economy and the worsening global financial environment, the focus of this article therefore is to identify the utilizable financial resource for SMEs (debt financing, equity finance, Mezzanine finance and venture investment), and analysis the possible difficulties during their financing process.
2. The Available Finance Sources for SMEs
Access to external finance is crucial for business to start up and continue. At the early time to start business, initial owner finance (investment from family or friends) is normally the first resource of finance. Depending on the different human resource network and their economic power, the provided money for borrowers could be diverse. In this section, we will focus on the other external available finance resource for SMEs.
Debt Financing
Bank finance
Bank is the primary choice for SMEs when it comes to financing. ‘Half of SMEs who use at least one form of external finance most commonly use bank funding; either loans, credit cards or overdrafts (SME Finance Monitor, November, 2011).’ Weighing up all the financing avenues from bank, credit loan is the least ‘expensive way’ to access the funding due to the lenient requirement on mortgage. The repayment of credit loan is guaranteed on credit of borrowers. In that way, the credit of borrower is the key factor to secure the needed loans. When Jindeli Ltd (a successful jewelry craft enterprise located in Fujian Province, China) seek 5 million dollar (this number was almost double as its fixed assets) to expand market in 2001, good credit reputation and the "China Famous Brand" title help it acquire the investment from China Citic Bank. Jindeli has become one of the top 100 manufacturing companies in China now. There is no doubt that good credit reputation could be the huge intangible asset for SMEs when they try to seek the funding from banks.

Alternative Debt Financing
Although bank is the biggest supplier of debt financing, ‘SMEs have been found to have less access to external finance and to be more constrained in their operation and growth (Berger and Udell, 1998; Galindo and Schiantarelli, 2003)’. ‘There are other independent financial institutions in the market which provide micro-finance loans to start-up companies, individuals and established...

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