Explain what sources of finance are available for small to medium sized companies and explain why they sometimes face difficulties in raising finance
The SME (Small and medium enterprise) sector is one of the crucial important contributor to economic growth in terms of Gross Domestic Product(GDP) and job creation worldwide(IFC,2010). According to OECD(2006), SMEs had created more than sixty percent of the job opportunities for OECD countries. That situation for developing counties are even more obvious. There is no doubt that the development of SMEs is closely linked to national economy. The growth of SME sector, however, presents a stalled tendency, even recession situation, owing to the deficiency of accessing to …show more content…
According to Berger&Udell (2006), leasing is that the fixed assets are purchased by the lender and then loan to lessee, in the form of rental, under an pre-specified contract which shows that the fixed assets can be bought by borrowers at the end of the leasing. Correspondingly, lender should be responsibility of purchasing item, while, lessee will be responsible for maintenance of equipment.
Opaque firms can use leasing to help for their production, this is because that the underwriting decision is mainly based on the value of leased items, rather than ‘hard’ information, when they have limited money for operating(Berger&Udell, 2006).
2.3.4 Public debt
Although public debt is a possible way of financing for SMEs, but in reality, it is not too widely used. Because it is prohibitive for SMEs to issued public debt in many counties, such as in china.
2.4 Bank finance for SMEs
Financing in bank are variable, it involves financial statement lending, small business credit scoring, asset-based lending, fixed-asset lending, relationship lending and factoring. Unlike other sources of bank-financing, relationship lending mainly depends on the ‘soft’ information collected from SMEs via directly continuous access to the firms and its owner performance(Berger & Udell, 2006). While, financial statement lending, asset-based lending and fixed-asset lending are quite