On the causes and countermeasures of financing difficulties of small and medium-sized enterprises

I have recently been writing my thesis on the financing difficulties of small and medium-sized enterprises (SMEs), and this is my English literature.

Title: The SME Financing Gap: theory and Evidence

Source: Financial Market Trends; Oct2006,Issue 91,p87-97,9p

Organization for Economic Cooperation and Development (OECD) countries as well as the dramatic and transformative growth of SMEs around the world, have made it imperative for these countries to examine and reform their entire framework for corporate finance.

Conclusions

Lack of data hinders a comprehensive analysis of the financial situation of SMEs in both OECD and non-OECD economies.

The financing gap is generally higher in emerging market countries than in OECD countries, but many OECD countries have ISME financing gaps. Overall macroeconomic laws, regulations, and fiscal regimes are key factors in SMEs' access to finance.

Small and medium-sized enterprises (SMEs) and their lack of market information and specialized financing skills capabilities required for financing.

In the business of lending to SMEs, the modern market-based banking model has a competitive advantage over highly centralized and controlled banks that are more concerned with overseas competition.

Emerging economies need to strengthen the incentives for SMEs to grow in a more regulated manner.

An effective framework for the study of commerce linkages is an important prerequisite for an effective ISME financing.

Recommendations

The government can play an important role in supporting the development of SMEs, especially, in times of recession and in the case of incomplete market economy which will be a serious impediment to the provision of adequate cash flow to SMEs or to the provision of the minimum amount of financing needed for SMEs' development.

Government initiatives to promote SME development should be focused and aimed at improving market efficiency sufficient to provide and activate markets for SME financing.

Public ****policy should strengthen the planning of financing programs from official sources and provide private investors with awareness of the range of entrepreneurs and banks.

Respecting the principle of risk sharing, the special funds will only go to the relevant enterprises, banks, and enterprises in partnership with the University.

The tax system should not be unfavorable to SMEs.

If necessary, the banking system should be reformed to conform to the principles on which the market is based.

Governments should determine whether the capital involved is formal market venture capital (often referred to as "business angels"), which can be more efficiently characterized as technical support through government operations.

National policies should encourage diversification of savings and flexible regulation by institutional investors.

Market operating norms should fully utilize the efficient functioning of enterprises both at home and abroad.

Legal, tax and regulatory frameworks should be reviewed to ensure that the market environment is conducive to the development of venture capital, including export opportunities.

The sharply varying levels of development of SME sectors in OECD countries and worldwide makes it imperative for those countries where the sector is lagging to review and reform. is lagging to review and reform their entire frameworks for entrepreneurial finance.

Conclusions

A lack of data impedes a complete

A lack of data impedes a complete analysis of the financial situation of SMEs in OECD and non-OECD economies.

Financing gaps are more pervasive in emerging markets than in OECD countries, but many OECD countries are not able to provide a complete analysis of the financial situation of SMEs. countries,but many OECD countries have financing gaps for ISMEs.

The overall macroeconomic legal, regulatory and financial framework is the

The overall macroeconomic legal, regulatory and financial framework is the critical determinant of SMEs' access to finance.

SMEs have significant gaps in the information and skills needed to access external finance.

The modern market-based model of banking is more likely to work to the advantage of SMEs than highly controlled banking that is closed to foreign competition.

Emerging economies need to strengthen incentives for SMEs to move into the formal sector.

An effective framework for research-commerce linkages is a key element of the research-commerce strategy.

Emerging economies need to strengthen incentives for SMEs to move into the formal sector.

An effective framework for research-commerce linkages is a critical precondition for effective ISME finance.

Recommendations

Governments can play an important Governance can play an important role in supporting the SME sector, in particular, in cases of market failures and incomplete markets that inhibit the provision of adequate financing or financing on terms suitable for the stage of development of the SME sector.

Government measures to promote SMEs should be carefully focused, aiming at making markets work efficiently and at providing incentives to SMEs.

Government measures to promote SMEs should be carefully focused, aiming at making markets work efficiently and at providing incentives for the private sector to assume an active role in SME finance.

Public policy should improve

Public policy should improve awareness among entrepreneurs of the range of financing options available from official programmes, private investors, and banks. principle of risk sharing should be observed, committing official funds only in partnership with those of entrepreneurs, banks, businesses or universities.

The tax system should not inadvertently place SMEs at a disadvantage.

Where necessary,banking systems should be

The tax system should not inadvertently place SMEs at a disadvantage.

Where necessary, banking systems should be reformed in line with market-

based principles.

Governments should determine whether the market for informal risk capital (often described as "business angels") can be made to operate more efficiently through government technical support.

National policies should

National policies should encourage diverse forms of institutional savings and institutional investors should be regulated flexibly.

The market for corporate control

The market for corporate control should be allowed to function efficiently for both domestic and foreign entities.

The legal, tax and regulatory framework should be reviewed in

The legal, tax and regulatory framework should be reviewed in order to assure that the environment encourages the development of venture capital, including opportunities for exit.