What are the disadvantages of traditional financing methods for small enterprises?

What are the disadvantages of traditional financing methods for small enterprises?

Let me take stock of the shortcomings of the traditional financing mechanism for small enterprises:

First of all, the high financing cost limits the financing ability of small enterprises.

First of all, due to the single source channel, simplified source mode and unreasonable financing structure, the financing cost of small enterprises cannot be minimized. According to the investigation of Shenzhen 4 1 SMEs by Shenzhen Investigation Team of National Bureau of Statistics, the main financing channel for small enterprises is commercial banks. The single financing mode of small enterprises increases the risk of banks.

Secondly, the high interest rate of private lending limits the financing ability of small enterprises. Private lending is easier to achieve unsecured loans and has advantages over commercial banks in meeting the capital needs of small enterprises. Based on the principle of high risk and high return, private lending will inevitably implement high interest rates, but small enterprises are generally short of funds, and high interest rates will inevitably limit their financing ability.

Thirdly, off-balance sheet financing makes it impossible for small enterprises to enjoy tax deduction of interest. Off-balance sheet financing helps to improve the quality of balance sheet. On the surface, it optimizes the financial situation of the enterprise, but in essence distorts the financial situation and operating performance of the enterprise. Higher off-balance-sheet financing costs may cause losses or reduced profits of enterprises, and ultimately harm the interests of investors and creditors.

Second, the information asymmetry between the capital supplier and the demand side.

Generally speaking, the financial data of small enterprises are inaccurate, untrue and incomplete, the credit system has not been established and improved, and there are few business contacts with banks, so banks cannot establish credit files for them. Information asymmetry in the credit market leads banks to be reluctant to provide funds to small enterprises. In addition, the operation of small enterprises is not transparent enough, and the possibility of adverse selection and moral hazard is higher than that of large enterprises. Moreover, small enterprises are small in scale, and once risks occur, they are more likely to change their faces and evade debts; Small enterprises have a short operating period and a high probability of withdrawing from the market. These factors make banks take more risks when lending to small enterprises than when lending to large enterprises. Therefore, adverse selection caused by asymmetric information beforehand and moral hazard caused by asymmetric information afterwards lead to the decline of lending ability.

Third, the direct financing system needs to be improved.

Whether in developed or developing countries, small enterprises face many difficulties in entering the securities market. Under the current policy and financial environment, the threshold of entering the capital market is high, and it is difficult for small enterprises to find direct financing channels in the capital market, so it is very difficult to raise funds through the securities market. On the other hand, the issuance of bonds by enterprises is strictly controlled by the government, and most small enterprises do not meet the requirements, so it is difficult for small enterprises to obtain the qualification of issuing bonds for financing.

Fourth, the contradiction between the high risk of small enterprises and the operating principles of commercial financial institutions.

First of all, high risk is the basic defect of small enterprises. Small enterprises make arbitrary decisions, cash flow fluctuates greatly, effective collateral is insufficient, anti-risk ability is weak, internal control system is not perfect, product quality and market are unstable, and most small enterprises are difficult to meet the basic conditions of commercial bank loans. For banks, the first consideration is security, and lending to small businesses is risky.

Secondly, the small loan amount, large quantity and high cost of small enterprises determine that they cannot bring a lot of deposit, settlement and intermediary business to banks like the credit business of large enterprises.

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