Financing Of The Small And Medium Sized Finance Essay - Free Essay Example

With the deepening of marketing economy and reform in China, small-and-medium-size enterprises have accounted for half of the total economy. Unfortunate, they are facing many difficulties nowadays, such as shortage of capital, scant innovations, lack of human resources and nonstandard manganese so an and so forth, financing problems, in particular, has become a bottle neck, which severely hinders the economy. Essentially, financing ways are systematically arranged, especially under marketing economy, the financing modes will not only be confined with the enterprise itself, but be bounded on economically financial circumstances and financial system of a country. This paper mainly analyse the presenting conditions and the causes of financing plight from the following three aspects: National macro-policyÃÆ' £Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ Financial systemÃÆ' £Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ quality of the enterprises itself, then we come to the conclusion. They are the principal factors which make the small-medium sized enterprises hard to finance, such as the imperfection social financing systemÃÆ' £Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ immaturity of credit warrantyÃÆ' £Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ asymmetric information of the enterprisesÃÆ' £Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ unsound system of enterprises themselvesÃÆ' £Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ the low credits and so on. On the bases of benefiting from foreign experiences and fundamental realities of our country, we will get down to improve the quality of their own. At the same time, we also accelerate to build multi-levels, all- dimensional, perfect supportive financing system and improve the macro-policy environment . In this case, we can ensure the quick and healthy development of small-medium sized enterprises and even our whole national economy. Introduction Since Chinas socialist market economy system and its multiple coexisting forms of ownership were established, many small and medium enterprises have sprung up, in particular privately owned small and medium enterprises. In every countrys national economy, small and medium enterprises numerically make up over 90% of companies, accounting for around 60% of employment and over half of output. They play an irreplaceable role in a nations economy. In China, however, owing to historical and systemic reasons, small and medium enterprises cannot be compared to large scale enterprises in terms of financing, tax take and market competitiveness, and are at a clear disadvantage. In order to promote the stable and healthy growth of small and medium enterprises, the central government along with local governments have given them great support both in legislation and in policy. The Law of the Peoples Republic of China on Promotion of Small and Medium-sized Enterprises, which came into force on Janu ary 1, 2003, designates general regulations for support given to small and medium enterprises in financing and setting up enterprises, technological innovation, market development and service to the community. However, according to media reports, the Financing Climate Index for small and medium enterprises fell to 68.8 in the second quarter of 2004, which is classified as unfavourable and marks a fall of 3.7 points on the last quarter. The figure is 44.2 points lower than that for large-scale enterprises. 38.2% of small and medium enterprises felt that access to financing was a problem. The increase in the difficulty of obtaining financing for enterprises has aggravated the already severe strains on liquid funds in small and medium enterprises. Barriers to access to financing are without a doubt on of the main impediments to the development of enterprises, and in particular small and medium enterprises. From the analysis of this survey, we can see that the difficulty in getting acce ss to financing has created a bottleneck in the development of small and medium enterprises, and that to some degree, the financing of small and medium enterprises has become a constraining factor on the development of Chinas national economy. In China, there are three main factors that affect the financing problem of small-and-medium-size enterprises, namely, enterprises themselves, financing organization and Government of which high managing risks, poor profitability and shortage of fixed assets are the interior reason, more important is that the information between bank and enterprises is not on the basis of reciprocity and the loans are cut down, the financial circles in China are being integrated. The financial circumstances and systems led by the government are the deeper reasons. Countermeasures to solve the financing problem of SMEs Research Part I. A self-building to strengthen SMEs SMEs in financing problems are not caused by one or two factors, but the role of various factors in the above formed. So both the source of SME financing or external sources, including the financing issues, not just rely on one or two efforts can be fully resolved, its solution requires medium itself, the central and local government agencies and banks and other Financial institutions can better work together to solve them. (A)Regulate the internal management of SMEs, improve their overall quality. Generally start from the following three aspects: first, to clarify property rights of enterprises, the establishment of stock cooperative system. Actively and steadily promote the reform of property right system, only the property rights of enterprises, operators of fishes and their behavior is responsible for the future development of enterprises, corporate credit be possible to set up. According to the requirements of modern enterprise system and the characteristics of SMEs themselves, and vigorously promote the stock cooperative system, and promote the reform of small and medium enterprises. Through the transfer of property rights, joint-stock reform, leasing, auctions and other means to accelerate the pace of reform enliven small and medium enterprises. Encourage employees to volunteer in the reform of shares, increase the concerns of the staff of the degree of enterprise assets, for the development of e nterprises to open up new financing channels. Second, standardized enterprise financial systems, improve financial management. According to relevant national regulations, establish and improve the financial and accounting systems do not do cooking the books, the establishment of sound financial reporting system to improve the transparency of corporate financial position and financial statements of credibility. Positive settlement of bank debt and payables, the establishment of the credit system, and improving the confidence level. Finally, strengthening internal management, improve enterprise credit rating. Typically, a grade credit rating over the enterprises and financial institutions to consider the financing application, so enterprises should establish a good corporate image, to eliminate bad credit records, and improving the credibility level of repayment, vigorously develop the market. While also establishing a set of indicators of credit rating system and actively cooperate w ith relevant government departments, build a credit system as soon as possible. (B)Clearly the role of credit guarantee SME credit guarantees to clear the nature and role, to play the correct effect. The establishment of SME credit guarantee system should be followed to provide credit guarantees, to promote SME financing purposes, then assist the healthy development of SMEs to economic growth and social stability, the purpose of clarifying its nature is not for profit, but a kinds of mutual aid the public good nature, its role is to guide social capital, especially the flow of bank funds for SMEs, and promote economic development. (C)To correctly handle the relationship between financial institutions First, the government and the relationship between security agencies, SME credit guarantee institutions, while a policy-oriented organizations, but security agencies are engaged in the business market, should reflect a certain degree of independence, the implementation of corporate management, so arrangements should be separated from the government know, market selection. The government set the identity of the major shareholders of policy guidance and external oversight. Followed by the security relationship between institutions and banks, guarantee agencies and banks have been the two interests is the relationship between the divisions of work. First, the guarantee agency business is the admissibility of a large bank that the credit risk business, these guarantee agencies to convince the banks have a risk management measures, credit rating and to maintain a certain degree of transparency of banks to increase the banks trust degrees. Secondly, in terms of banks, guarantee agencies involved, the banks moral hazard the enterprise, business risk onto the security company. Therefore, the banks and guarantee agencies should strengthen the ties of mutual understanding, the initiative to undertake part of the loan risk, the formation of risk and profit sharing relationships. Finally, security agencies and the relationship between SMEs, the credit guarantees and pays off the secured and the associated relationships. To handle the relationship between the two, first of all, the process of cooperation between the two should be kept in the utmost good faith, the enterprise should faithfully reflect the actual situation, strict compliance; Second, properly handle the issue the guarantee fee, guarantee fee income is the main security agencies sources to maintain the balance of payments, while small and medium enterprises are looking to lower financing costs, therefore, to reasonably determine the guaranteed rate to form a win-win situation. (D)The development of special legal rules and norms of credit Development of specialized credit and the legal system of rules as soon as possible to guide credit guarantee industry. The rapid development of credit guarantee, but due to lack of necessary legal protection and restraint, and our Guarantee Law is not really a credit security law, it is the behavior of the NPC enacted the Basic Law guarantees adjustment, which implement the general Civil and Commercial Law the principle of equal protection of the civil subject, and transaction security and interests of creditors, credit guarantee and credit guarantee for the industry not covered by law. In view of this, the credit as soon as possible to develop specific legislation to regulate and guide the credit guarantees industry. Part II. To create a favorable financing environment of SMEs To develop support policies targeted (A)The reason why small and medium enterprises in China is still in the early stages of development, management system and management were very irregular, a very important reason is that our Government has not paid attention to the development of SMEs, the relevant preferential policies tilted only to large enterprises. Therefore, the state should be in accordance with the rules of market economy, the introduction of more support for SMEs on the development of policies to guide SMEs to participate in fair competition, promote small and medium enterprises to standardize direction. Meanwhile, the states fiscal policy should be to improve the small and medium enterprises, governments at all levels should be increased investment in small and medium enterprises, to solve the debt problems of some of the history of small and medium enterprises; clean up the different nature of the existing preferential tax policies for enterprises of different ownership enterprises must equal treatment; le vels of administration should not be arbitrary charges and fines for small and medium enterprises to effectively reduce the burden on SMEs. (B)Establish and improve the financial system Co-ordinate the overall national small and medium enterprises should set up government agencies, the State Economic and Trade Commission recently established by the Secretary should support small and medium enterprises, to know and regulate the development of SMEs play a central leadership role. Same time the country as soon as possible a clear focus on providing financial services to small and medium financial institutions system. The first state-owned commercial banks to set up a dedicated SME credit department, expand deposit and loan services for small and medium enterprises; the second is a reasonable adjustment of city commercial banks, urban credit cooperatives and rural credit flow of credit designed to highlight the focus of support for local SMEs, small and medium financial institutions to give full play the main role in support of SMEs; third is properly established for the individual and private economy, SMEs and small financial institutions. (C)Capital Market Direct financing of enterprises has to be non-reimbursable financing of external ownership, improve corporate asset and liability structure, the effective allocation of social resources and other advantages; this is to solve the financing difficulties of SMEs, financing channels for a single approach to this important issue. The government should encourage SMEs to engage in direct financing put the appropriate policies and measures, the establishment of foreign products targeted at small-scale, high technology and market potential of high-tech SMEs in the capital market financing services, to encourage qualified enterprises to enter the securities market financing, both to help SMEs to solve this problem, reduce financing costs, but also to spread the concentration of investment risk, and change society for the production of personal consumption fund development and construction funds, but also conducive to improving Chinas capital market has become increasingly strong. (D) The establishment of SME credit guarantees system Financing difficulties of small and medium business to a large extent is due to greater credit risk, banks are reluctant to provide loans to them. If the Government can guarantee loans to SMEs or insurance, it will be able to relieve the difficulty. Therefore, the Government must set up appropriate security and insurance institutions, financial intermediation for SMEs and provide a strong backing. Located in Guangdong Province, the Guangdong Ronsen Super Micro-Wire Co, Ltd. (previously known as the Zhuhai Ronsen Electrical Manufacturing Co. Ltd) is a specialized manufacturer of electronics, mechanical equipment, and power supplies using enameled wires. The company was incorporated in Zhuhai in 1991, with a registered capital of 1.5 million RMB. Shareholder investment came from the Sichuan Southwestern Electronics Factory, the Zhuhai Special Economic Zone Development Corporation, and the Hong Kong Everbest Machinery Industry Co Ltd. Following more than ten years of hard work, in 2002 the company was recognized as a high-tech enterprise by the Department of Science and Technology of Guangdong Province. The main business is production and sale of fine enameled wire, fine enameled raw materials for the production of micro-inductors, micro relays, micro motors, magnetic heads, headphones, micro speakers, and other electronic components. Production development is mainly focused on m icro type, heat resistance, composite coating, white coating, straight welding, and suitability for high-speed winding machines. Total annual demand for enameled wire in China is around 300,000 tons. In June 2005, to adapt to market trends and meet customer demand for high quality fine enameled wiring, Ronsen proposed a plan for expansion of production of fine wire and industrialized production of special enameled wire. An increase in the proportion of technologically advanced products enables increased economic efficiency and enhanced competitiveness. Many years of effort have enabled Ronsen to reach its current scale, with total annual sales of around fifty million RMB. However, the company lacked the capacity to quickly meet market demand and expand the manufacturer of high-level products. Therefore, they needed new strategic investors. Seeking strategic cooperation with a venture capital company, in early 2006, Ronsen requested a strategic partnership with the Guangdong Provincial Science and Technology Venture Capital Co. The strategic alliance aimed to speed up the companys expansion plans, and establish a more standardized corporate governance and internal management mechanism. After a thorough investigation, evaluation, and exchange with the companys management and business philosophy, the venture capital company decided to proceed with the investment. In November 2006, the Guangdong Provincial Science and Technology Venture Capital Co. invested 10 million RMB, taking a 25% stake in the business. The alliance with the venture capital company drove technological advances. In 2007, the Ronsen fine enameled wire industrialization project won the top scientific and technological progress prize in Zhuhai City. Joint-stock reform ensured even greater progress. Alliance with the Guangdong Provincial Science and Technology Venture Capital Co. was enhanced with regular exchange and communication between corporate management and shareholders on strategy for future development, as well as strengthened cooperation with intermediaries. In order to promote the standardized operation of the business, and meet the future requirements for securing financing on the stock market, the company has promoted a joint-stock reform process. On October 10, 2006, the joint-stock reform was formally completed, and the company changed its name to the Guangdong Ronsen Super Micro-Wire Co, Ltd. Following the joint-stock reform, the companys registered capital was forty-two million RMB. After its accession to the WTO, China has gradually emerged as the worlds major processing center. Ronsen has drawn up a new development plan to establish a new modern production base in Zhuhai, doubling existing production capacity within two to three years, while continuing the research and development of high-quality products that meet the requirements of high-end customers. High quality products, good service, standardized management will create a first-class enterprise. Ronsens ability to bring in a venture capital company at the right time enabled a rapid development in a short few years that would otherwise have taken much longer. This case shows that investment by venture capital companies is a suitable development strategy for SMEs. This type of investment can improve investment efficiency and broaden the scope of the development, having a profound impact on enterprise breakthrough.