What principles should China's enterprise financing market follow?

First, the principle of matching benefits with risks.

The purpose of enterprise financing is to put the raised funds into enterprise operation, finally gain economic benefits and maximize shareholder value. Before each financing, enterprises often predict the final benefits that this financing can bring to enterprises. The greater the income, the more profits. Therefore, it seems that the maximization of total financing income should be a major principle of enterprise financing.

However, "there is no free lunch in the world", in fact, while financing income, enterprises should also bear corresponding risks. For enterprises, although the financing risk is uncertain, once it happens, the enterprise will bear the loss of 100%.

One of the characteristics of small and medium-sized enterprises is their small scale and low ability to resist risks. Once the risk evolves into the final loss, it will inevitably bring great adverse effects to the operation of enterprises. Therefore, small and medium-sized enterprises should not only focus on the final total income when financing, but also consider what risks the enterprise should bear under the given total income and whether these risks can be borne once they turn into final losses. That is, the financing income should match the financing risk.

At present, China's small and medium-sized enterprises in the financing process will mainly encounter the following risks. I hope that enterprises must take it into consideration and make a comprehensive analysis in the process of financing decision.

policy risk

Generally speaking, due to the unstable production and operation of small and medium-sized enterprises, changes in macroeconomic and financial policies may have a certain impact on the production and operation, market environment and financing situation of small and medium-sized enterprises. If small and medium-sized enterprises can't make keen response and timely adjustment according to the changes of national economic and financial policies, it will bring certain risks to the financing of small and medium-sized enterprises, and then affect their development. For example, in industries restricted by national industrial policies, enterprises will find it difficult to sustain. Another example is that during the tight monetary policy, the supply of funds in the market has decreased, which has affected the risk of SMEs financing through the market. Either there is no financing, or the financing cost increases and the financing quantity decreases, which further increases the operating risk of SMEs.

interest rate risk

Interest rate is the price of capital. In market economy countries, interest rates are market-oriented, and the level of interest rates is determined by the supply and demand of market funds. Any change in the market interest rate will have an impact on both the supply and demand sides of funds. The interest rate marketization reform in China has been carried out for many years and achieved great results. Interest rates in some markets, such as interbank lending, have been liberalized, and the floating range of loan interest rates is increasing. The state uses interest rate leverage to regulate the economy, and commercial banks also use interest rate floating rights to regulate their operations and reduce risks. When the country needs to raise interest rates according to the change of economic situation, enterprises, especially small and medium-sized enterprises, will face interest rate risk, financing costs will increase and financing will become difficult. Judging from the practice of interest rate marketization reform in recent years, the loan interest rate of commercial banks to large state-owned enterprises fluctuates slightly, while the loan interest rate to small and medium-sized enterprises fluctuates greatly, which undoubtedly increases the financing cost of small and medium-sized enterprises. Due to the characteristics of small and medium-sized enterprises, in order to reduce adverse selection and moral hazard, commercial banks either directly increase the loan interest rate for small and medium-sized enterprises, or increase the implied price of their loans (such as increasing guarantees and mortgages), or set higher loan conditions, further increasing the capital cost of small and medium-sized enterprises. It can be seen that the impact of interest rate risk on SMEs is direct.

(3) Operational risk

Because SMEs are highly dependent on the external economic environment, they are sensitive to the national industrial policy and financial policy. The arrangement of the national economic system, the changes in the macro and micro economic environment and the intensification of industry competition will increase the business risks of SMEs and ultimately affect their business development. Small and medium-sized enterprises with poor management, poor sales channels, insufficient competitive strength or difficulty in spreading risks are often the first to be impacted by the market. However, the increase of business risks undermines the stability of small and medium-sized enterprises, making it more difficult to meet the conditions of market financing and financing more difficult.

(4) Managing risks

Mainly manifested in the backward management concept of small and medium-sized enterprises, lack of basic internal management work, weak management links, low quality of personnel, insufficient research on potential market demand, limited technical strength in product research and development, and lack of foresight on market trends. Due to various defects in management, small and medium-sized enterprises lack stamina. High opening rate and high closing rate are the main characteristics of small and medium-sized enterprises, which makes the intervention of commercial financial institutions very cautious. In China, the elimination rate of small and medium-sized enterprises in five years is nearly 70%, of which about 30% are in a state of loss, only about 30% have growth potential, and about 70% have weak development ability. Only 1% of them can survive for more than 10 years. Therefore, small and medium-sized enterprises will face many financing obstacles regardless of direct financing or indirect financing, and the financing risk is often great.

(V) Credit risk

Lack of credit in small and medium-sized enterprises is a common phenomenon. Some small and medium-sized enterprises have untrue accounting information, empty funds and chaotic accounting, and some small and medium-sized enterprises have some phenomena such as capital flight, arrears of accounts, malicious tax evasion and inferior products, which have affected the image of small and medium-sized enterprises to some extent. For example, Jiangsu Qionghua, which is listed on the SME board of Shenzhen Stock Exchange, has become the target of public criticism for being suspected of false records and major omissions. Hualan Bio warned before listing that Wei Xing's major information disclosure was omitted, and Xinhecheng was suspected of illegal fraud. Compared with the openness of large enterprise information and the availability of low-cost information, the information of small and medium-sized enterprises is basically internalized and opaque, and it is difficult for financial institutions such as banks and other investors to obtain it through general channels. Therefore, if banks want to provide loans to SMEs and investors want to invest in SMEs, they must increase the input of human resources and improve the quality of information collection and analysis. On the one hand, it increases the loan and investment costs of banks or investors, on the other hand, it also brings difficulties to the financing of small and medium-sized enterprises, whether and how much funds can be raised.

Increased the uncertainty of financing for SMEs.

(VI) Rating risk

The credit rating of an enterprise directly affects the financing qualification, financing scale and financing cost of direct financing and indirect financing. In China, SMEs are obviously at a disadvantage in terms of credit rating. Because at present, there is no credit rating system and credit rating agency for SMEs in China. The existing rating of SMEs is only the rating methods and indicators formulated by creditors themselves, and its pertinence, authority and universal applicability are not very strong, so the rating results of SMEs are often low, which makes SMEs at a disadvantage in the financing process. In addition, due to small business scale and weak financial strength, small and medium-sized enterprises can't afford the expenses of authoritative rating agencies at home and abroad, or lose financing qualification because of low credit rating, or need to increase financing costs.

How can we match the financing income with the financing risk? This is a very complicated problem, which needs a lot of mathematical models to explain clearly, and this is far beyond the scope of this book. Here, the author only uses a popular language to explain: first, calculate the final income of financing, then list the financing costs that enterprises may spend and the risk factors that they may encounter, and use experience to predict how much these risks will lose once they turn into losses. If the final income of financing is greater than these losses, and such losses can be borne by the enterprise, then the financing behavior of the enterprise is feasible, and the matching of financing income and financing risk is basically realized. Of course, the degree of acceptance of risks varies from enterprise to enterprise, and there is no definite quantitative regulation. How to match risks and benefits still requires managers to make their own judgments.

Two, according to the principle of financing scale

In the financing process of small and medium-sized enterprises, it is also very important to determine the financing scale of enterprises. Too much financing may lead to idle waste of funds, increase financing costs, and may also lead to excessive debts of enterprises, which are unbearable and difficult to repay, increasing operational risks. However, if the financing of enterprises is insufficient, it will affect the normal development of investment and financing plans and other businesses of enterprises. Therefore, at the beginning of financing decision, enterprises should determine a reasonable financing scale according to their own demand for funds, their actual conditions, the difficulty and cost of financing.

When determining the financing scale, the following two factors should be considered:

(A) the form of funds

Generally speaking, the capital forms of enterprises mainly include fixed funds, circulating funds and development funds.

Fixed capital is the capital used by enterprises to purchase fixed assets such as office equipment, production equipment and means of transportation. The purchase of these assets is necessary for the long-term development of enterprises, but the purchase of equipment and places necessary for these production generally involves a large capital demand and a long period of time. Due to the weak financial resources, small and medium-sized enterprises should try to reduce their investment in this area and meet their production needs through some ways with less cost and less capital occupation.

Working capital is used to support the normal operation of enterprises in a short time, so it is also called working capital, such as office expenses, employee salaries, travel expenses, etc. Settlement methods and seasons have a great influence on liquidity, so managers of small and medium-sized enterprises must be cautious and try to occupy liquidity as little as possible. Because small and medium-sized enterprises are small in scale, the demand for liquidity can be solved by means of their own funds and loans.

Development funds are funds used by enterprises for technology development, product research and development, and market development in the development process. This part of the capital demand is very large, and it is not enough to rely solely on the strength of small and medium-sized enterprises. So this part of the funds can be solved by increasing capital and shares and bank loans.

(II) Period of capital demand

Different enterprises and different business processes of the same enterprise have different time requirements for capital demand. For example, high-tech enterprises generally need longer capital time because of the long process from the launch of new products to social acceptance, so the demand for capital is also greater, while traditional enterprises generally need less capital because of mature products, good quality and market development.

When determining the scale of financing, small and medium-sized enterprises must carefully analyze the form and duration of their capital needs, make reasonable arrangements, and minimize the scale of financing. The principle is: enough is good.

In practice, enterprises can generally use empirical methods and financial analysis methods to determine the scale of financing. Empirical method refers to that enterprises give priority to their own funds and then consider external financing according to the different nature of internal financing and external financing when determining the financing scale. The difference between the two is the amount that should be financed from outside. In addition, the amount of enterprise financing usually depends on the scale, strength and development stage of the enterprise itself, and then combined with the characteristics of different financing methods, choose the financing method suitable for enterprise development. For example, for financing enterprises of different sizes, generally speaking, joint-stock enterprises with considerable scale and strength have made great progress, and they can consider issuing shares in the securities market for financing; Small and medium-sized enterprises belonging to high-tech industries can consider issuing stocks on the growth enterprise market for financing; Some enterprises that do not meet the listing conditions can consider bank loan financing. For another example, for small enterprises in the initial stage, you can choose bank financing; If it is a high-tech small enterprise, consider venture capital fund financing; If the enterprise develops to a considerable scale, it can issue bonds for financing, or consider strategic financing through mergers and acquisitions.

Financial analysis refers to the analysis of the financial statements of enterprises to judge the financial and operating conditions of enterprises, so as to determine a reasonable financing scale. Because this method is complex and requires high analytical skills, it is generally used when there are many uncertain factors in the financing decision-making process. Using this method to determine the scale of financing generally requires enterprises to disclose financial statements, so that fund providers can determine the amount of funds provided to enterprises according to the statements, and enterprises themselves must also determine how much their own funds can be raised through report analysis.

Third, the principle of controlling the lowest financing cost.

When we mention the concept of financing cost, we have to mention the concept of capital cost, and these two concepts are also easily confused.

The economic meaning of capital cost refers to the opportunity cost of capital invested in a project. This part of the funds may come from within the enterprise or may be raised from external investors. However, no matter where the funds come from, enterprises have to pay the price for the use of funds. This price is not the actual price paid by the enterprise, but the expected price, which is the expected rate of return that investors in investment projects hope to get.

Financing cost refers to the financing cost (or expense) actually undertaken by the enterprise, including financing cost and use cost. Financing expenses are all kinds of expenses incurred by enterprises in the process of financing, such as paying intermediary fees to intermediaries; Royalty refers to the remuneration paid to the provider by the enterprise for using funds, such as dividends and bonuses paid to shareholders by stock financing, interest paid to creditors by issuing bonds and borrowing money, etc. The sources and channels of enterprise funds are different, and the composition of financing costs is also different. Generally speaking, due to the lack of their own software and hardware (professional statistical software and professional financial personnel), SMEs often pay more attention to financing costs, which is more operable than capital costs.

The financing cost of enterprises is the decisive factor to determine the financing efficiency of enterprises, and it is of great significance for small and medium-sized enterprises to choose which financing method. Because the calculation of financing cost involves many factors, it is difficult in practical application. Generally speaking, the financing costs of various main financing methods are in the order of financing sources: financial financing, commercial financing, internal financing, bank financing, bond financing and stock financing.

This is only the approximate order of financing costs of different financing methods, and the specific analysis depends on the specific situation. For example, the financial allocation in financial management not only has no cost, but also has net income, while the interest cost of low-interest loans of policy banks is even less. For commercial financing, if the enterprise uses commercial credit during cash discount, there is no capital cost; If you give up the cash discount, the cost of capital will be high. For another example, for stock financing, the financing cost of issuing common stock and preferred stock is also different.

Fourth, follow the principle of reasonable capital structure.

Capital structure refers to the composition and proportion of various capital sources of enterprises, in which the composition ratio of debt capital and equity capital occupies a core position in the decision-making of enterprise capital structure. When an enterprise is financing, the capital structure decision should reflect the ultimate goal of financial management, that is, to pursue the maximization of enterprise value. Under the assumption of continuous operation, the enterprise value can be determined according to the present value of expected income in the next few periods. Although the expected income of enterprises is restricted by many factors, the discount rate will also change due to the different risk levels of enterprises. But from the financing point of view, if the capital structure arrangement is reasonable, it will not only directly improve the financing efficiency, but also play a certain role in regulating the discount rate, because the discount rate is determined on the basis of fully considering the weighted capital cost and financing risk level of enterprises.

The optimal capital structure refers to the capital structure that can make the enterprise have the lowest capital cost and the highest enterprise value, and can mobilize the enthusiasm of all stakeholders to the maximum extent. Maximizing enterprise value requires reducing the cost of capital, but this does not mean insisting on low cost, regardless of the increase of financing risk, because it is also not conducive to the improvement of enterprise value.

The ultimate goal of an enterprise to obtain the best capital structure is to improve the effect of capital operation, and the main criterion to measure whether the capital structure of an enterprise is the best should be whether the total cost of enterprise capital is the smallest and whether the enterprise value is the largest. The capital structure with the lowest weighted average cost of capital should be consistent with the capital structure with the maximum enterprise value. Generally speaking, benefits and risks coexist, and the greater the benefits, the greater the risks. And the increase of risk will directly threaten the survival of enterprises. Therefore, enterprises should consider both benefits and risks. The value of an enterprise can only be maximized when the income and risk are balanced. The determination of total capital cost and enterprise value is directly related to cash flow, risk and other factors, so it should be used as the standard to measure the best capital structure at the same time.