SME Financing Decision-Making Elements And Practical Knack

In the process of rapid development of SMEs, P faces many difficulties, among which financing difficulties are the main bottlenecks hindering development.

With the gradual improvement of China's market economic system and the rapid development of the financial market, the innovative tools of the capital market are constantly emerging, and the degree of financial globalization is getting higher and higher. This is both an opportunity and a challenge for SMEs to make financing decisions.

There are both external and internal factors that affect financing decisions of small and medium-sized enterprises.

On the one hand, the financing service chain is not perfect, and the financing system is not yet perfect. On the other hand, SMEs still have many deficiencies and inherent defects, such as < a href= "//www.sjfzxm.com/news/list.aspx ClassID=101112107102" > property relations < /a > vague, closed structure, weak ability to resist risks, imperfect information disclosure mechanism, lack of credit problems and weak financial control.

The relative importance of various factors has different effects and effects under different conditions. In order to make scientific financing decisions, SMEs must weigh the effects of various factors in financing.

How to choose financing methods, how to grasp the scale of financing and the timing, conditions, costs and risks of various financing modes need careful analysis and research before financing.

How can we formulate the best financing plan? Professor Zhang Xuekui, a professor of investment and financing, believes that the following seven points should be grasped in financing decisions: < /p >

< p > < strong > 1. The total income of financing is greater than the total cost of financing < /strong > < /p >

< p > enterprise financing should first consider what the investment income after financing is, because financing means cost, financing cost has interest cost of capital, and may be expensive financing cost and uncertain risk cost.

Therefore, it is only necessary to consider that the total revenue expected from the raised funds is greater than the total cost of financing.

This is the first prerequisite for enterprises to make financing decisions.

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< p > < strong > two, < a href= "//www.sjfzxm.com/news/list.aspx ClassID=101112107105" > enterprise financing < /a > scale should do what is right. < /strong > /p >

< p > when raising funds, enterprises must first determine the scale of financing.

Excessive financing, or may cause idle and wasted funds, increase financing costs, or may lead to too much debt, so that they can not afford to repay difficulties, increase business risk.

Insufficient financing will also affect the normal development of investment and financing plans and other businesses.

Therefore, at the beginning of the financing decision, enterprises should do their best to determine the reasonable financing scale according to the needs of enterprises, the actual conditions of enterprises, the difficulty and cost of financing.

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< p > < strong > three, choose the best financing opportunity of enterprises < /strong > /p >

< p > generally speaking, we should give full consideration to the following aspects: first, enterprise financing decisions should have advanced foresight; enterprises should be able to grasp all kinds of external and environmental factors such as domestic and foreign interest rates, exchange rates and other financial markets, understand the macroeconomic situation, monetary and fiscal policies, and political environment at home and abroad, and rationally analyze and predict all kinds of favorable and unfavorable conditions that may affect the financing of enterprises and possible trends of change so as to find the best financing opportunities and make decisive decisions.

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< p > Second, considering the characteristics of specific financing methods, and combining with the actual situation of our own enterprises, we will formulate reasonable financing decisions at the right time.

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< p > < strong > four, reduce the financing cost of enterprises as far as possible < /strong > < /p >

< p > financing cost is the decisive factor that determines the efficiency of enterprise financing. For small and medium-sized enterprises, choosing the financing method is of great significance.

In the financing practice of enterprises, there is an excellent order in financing. Generally speaking, the preferred sequence is: first, the self financing of enterprises.

If small and medium enterprises invest less, it is preferable to withdraw cash from deposit accounts; secondly, consider short-term investment realisation.

Two, when SMEs have insufficient funds, they generally give priority to lowering dividends.

The three is external financing.

Enterprises first consider bank loans, then issue bonds, and finally issue shares.

From the perspective of financing priority, we can see that internal financing is the most important one, while stock financing is the last option in external financing.

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Financing theory and practice in western developed countries prove that small and medium-sized enterprises generally adopt the financing order of "internal financing priority, debt financing second and equity financing final" P.

However, this seems to be different from the listed companies' financing preference in China. The problem lies in the fact that a large number of enterprises do not apply the theory of pecking order in practice to SMEs' financial management practice. Most enterprises choose the financing way by intuition judgment and superficial capital cost.

Therefore, in the listed companies, the more they do not want to bear the risk of investment, the more they will prefer equity investment.

In addition, market inefficiency and cost distortions have also puzzled corporate finance.

In fact, under the perfect capital market condition, < a href= "//www.sjfzxm.com/news/list.aspx ClassID=101112107107" > creditor's rights financing < /a > cost is lower than the cost of equity financing, because debt interest is the tax front row, and has the effect of withholding tax, and the dividend payment of equity financing is after tax distribution, no tax reduction effect, debt financing is the preferred financing mode.

However, in China's stock market, due to the low dividend payout pressure and the distortion of stock prices, the cost of equity financing is lower than the cost of bond financing.

According to the data, the financing cost of China's 3 to 5 year bank loans is about 7.05% - 8.17%, which is far higher than the 1.18% stock financing cost. The reversal of this capital cost will inevitably lead to the management's preference for equity financing.

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