Prospect of SME Financing and Lawyer Business

Abstract:As the most active component of the economy, small and medium-sized enterprises, they have the courage to open up, effectively make up for the market gap left by large and medium-sized enterprises, and actively support their growth is a long-term basic economic policy of our country. However, financing difficulties have always been an insurmountable obstacle for small and medium-sized enterprises. Under the new economic situation, more and more financing methods are gradually emerging. How should law firms use various resources as intermediaries to provide financing paths for enterprises and expand New business is a problem worth thinking about. This paper makes a preliminary discussion on this in order to cause more discussion.

Key words:SME lawyer business

The Inevitability of 1. Lawyers to Expand the Business Related to SME Financing

Small and medium-sized enterprises are the most dynamic part of China's social and economic life, accounting for 99% of the total number of enterprises, contributing about 60% of China's GDP, 50% of tax revenue and 80% of urban employment. The number of corporate enterprises exceeds 10 million, which is the main driving force of national economic growth.[1]From the author's practice of financial and commercial legal business for many years, the so-called "large enterprises strengthen the country, small enterprises enrich the people", small and medium-sized enterprises are indeed the most important force at the social and economic level of citizens.

Importance of (I) SMEs[2]

1. Small and medium-sized enterprises are an important source of fiscal revenue, especially the main source of county finance. In 2010, the small and medium-sized enterprises above designated size in Shandong Province where the author is located paid 175.3 billion yuan in taxes, accounting for 52% of the total industrial tax revenue above designated size in the province. The tax provided by all small and medium-sized enterprises accounted for more than 55% of the province's tax revenue. Tax has accounted for more than 70% of fiscal revenue.

2. Small and medium-sized enterprises are large in number and widely distributed, and most of them are labor-intensive enterprises, which are the main channels for absorbing employment and transferring rural labor. In 2010, small and medium-sized enterprises and individual private enterprises in Shandong Province added 1.5 million employees, providing more than 80% of the new jobs.

3. Small and medium-sized enterprises are flexible in form and widely distributed. They have strong innovation and flexibility in organization, production, market and other aspects. They inject vitality into structural adjustment. They are an important force in the transformation of mode and structure, accelerate the development of high and new technology, promote the cooperation and social specialization of large and medium-sized enterprises, and accelerate the process of industrial agglomeration and urban-rural integration.

4. Small and medium-sized enterprises are the most important foundation and the most active subject of market economy. The development of small and medium-sized enterprises has made the main body of the market more diversified, created a diversified competition and dynamic environment, effectively prevented the formation of monopoly mechanism in general competitive industries, gave full play to the function of market allocation of resources, promoted the orderly progress of market competition, and promoted the prosperity of the market.

5. Small and medium-sized enterprises are the new force to promote rapid economic development. In 2010, the number of small and medium-sized enterprises registered in Shandong Province reached 680000, an increase of 172000 over 2005. The number of small and medium-sized enterprises accounted for more than 99% of the total number of enterprises in the province, and invention patents and new products developed accounted for 65% and 80% respectively. the above.[3]

Small and medium-sized enterprises play an irreplaceable role in increasing fiscal revenue, alleviating employment pressure, promoting structural adjustment and promoting economic growth, which is of great significance to economic and social development. However, the total amount of financing of small and medium-sized enterprises is seriously out of proportion to their contribution to the national economy, and financing difficulties have always been the shackles of the development of small and medium-sized enterprises. According to statistics, about 81% of small and medium-sized enterprises "liquidity can not meet the demand", 60.5 percent of small and medium-sized enterprises "have no medium-and long-term loans", and 47% of the small and medium-sized enterprises that have stopped production are due to shortage of funds. Since the implementation of the "SME Promotion Law" in 2003, many national ministries and commissions and the China Banking Regulatory Commission have been issuing laws and policies to support the development of SMEs and promote financing. Although they have achieved certain results, they have not fundamentally changed the imbalance.

The Financing Dilemma of Small and Medium-sized Enterprises in (II)[4]

The financing of small and medium-sized enterprises is a worldwide issue and problem, because there is asymmetry between small and medium-sized enterprises and the financing market. The moral hazard and credit rationing imbalance caused by information asymmetry in China's SME financing are more serious, coupled with market, policy and social reasons, resulting in the complexity of SME financing in China.

At present, the financing of small and medium-sized enterprises mainly comes from bank loans. It is relatively easy for large enterprises to obtain funds through mortgages and guaranteed loans or even listing, while small and medium-sized enterprises are generally in the growth stage, or are engaged in high-tech industries with a high proportion of intangible assets, and their assets that can be used for collateral are limited. It is more difficult to obtain loans from banks. Moreover, objective factors such as the time of existence of small enterprises themselves, the uncertainty of projects, and the reliability of repayment ability and repayment reputation force banks to be strict in their corresponding loan policies, which fundamentally limits the success rate of direct financing of small and medium-sized enterprises.

In the process of providing legal services for small and medium-sized enterprises, out of concern for the needs of enterprises, the author found that helping enterprises to obtain financing has gradually become a broader business. In addition to bank loans, the expansion of loan channels for small loan companies and village banks, the promotion of new business types such as the issuance of collective bills, and the development of multi-level capital markets have all provided new possibilities for SME financing. As an intermediary agency, how to integrate industry resources, introduce relatively novel financing models to small and medium-sized enterprise customers with better development prospects, help them obtain a large amount of capital financing, participate in the cultivation of counseling enterprises, and seek further improvement of the enterprise level. And then achieve a win-win effect is a problem worthy of attention. Lawyers take the initiative to participate in SME financing because of their industry characteristics, which should be an inevitable trend caused by demand.

The Choice of Financing Path of Small and Medium-sized Enterprises in 2.

1. Traditional loan financing[5]

(1) Ordinary commercial bank loans:

From the perspective of banks, the credit rating of small and medium-sized enterprises is generally not high. More than 60% of small and medium-sized enterprises have credit ratings of 3B or below, and their ability to resist risks is low. At present, 80% of new bank loans are concentrated in 3A or 2A enterprises. Therefore, due to high credit risks, small and medium-sized enterprises are restricted in obtaining bank loans, and the direct and indirect costs of bank loans are significantly higher than those of large enterprises. However, at present, the state vigorously develops credit guarantee institutions and gives a lot of policy support, which alleviates the difficulty of guarantee for small and medium-sized enterprises to a certain extent.

(2) Loans from microfinance companies and village banks:

In 2008, the General Office of the Shandong Provincial Government issued the "Opinions on the Pilot Work of Small Loan Companies", and vigorously developed small loan companies in accordance with national policy guidance in order to broaden the financing channels for SMEs. Microfinance companies can provide quick and easy, collateral-free or collateral-guaranteed microloans that specialize in serving customers who cannot obtain funds from traditional banks. But its disadvantage is that the loan amount is very small, which is more suitable for individual industrial and commercial households and small enterprises, and cannot meet the needs of small and medium-sized enterprises with a certain scale.

Village banks mainly provide financial services for local farmers, agriculture and rural economic development. They are closer to small and medium-sized enterprises in towns and villages, and the loan amount is generally relatively small.

2. Issuance of pooled notes and pooled bonds[6]

The market for direct debt financing by enterprises is divided into the exchange market and the interbank market, and the products are divided into three categories: corporate bonds, corporate bonds and non-financial corporate debt financing instruments. Among them, corporate bonds under the supervision of the National Development and Reform Commission can be issued and traded in the exchange market and the inter-bank market at the same time. Corporate bonds issued by listed companies under the supervision of the China Securities Regulatory Commission can only be issued and traded in the exchange market. The registered non-financial corporate debt financing instruments can only be issued and traded in the inter-bank market.

(1) Collective bonds: SME collective bonds are bonds that are issued by an institution as the leader and several companies together. They are a type of corporate bonds, also known as "bundled bonds". The National Development and Reform Commission has strict requirements on the public issuance of corporate bonds by enterprises, stipulating that the net assets of joint stock limited companies shall not be less than 30 million yuan, the net assets of limited liability companies and other types of enterprises shall not be less than 60 million yuan, the distributable profits (net profits) in the last three years are sufficient to pay the interest on corporate bonds for one year, the investment direction of funds raised is in line with the national industrial policy and industry development direction, and the relevant procedures, and the required. It is difficult for small and medium-sized enterprises to meet the above conditions. Domestic small and medium-sized enterprises have begun to try to issue corporate bonds in a bundled manner, that is, through the bundling and issuance of collective bonds of small and medium-sized enterprises, a group of outstanding small and medium-sized enterprises with sustainable profitability and strong risk control capabilities will be brought together to play the scale effect. At the same time, the principle of credit enhancement is used to reduce risk and effectively overcome the difficulty of issuing corporate bonds. Therefore, small and medium-sized enterprises with certain conditions can effectively raise funds through the capital market by issuing corporate bonds in this way. The first SME collective bond was the "China High-tech Industrial Development Zone Bond" issued by 13 companies in different high-tech zones in China in 2003, with an issuance scale of 0.3 billion yuan. On December 8, 2008, the General Office of the State Council issued the "Several Opinions on Current Financial Promotion of Economic Development", which pointed out that it is necessary to further expand the scale of bond issuance and steadily develop SME collective bonds to further support the development of SMEs.

(2) Pooled medium-term notes:

Debt financing instruments for non-financial enterprises are the general term for all kinds of debt financing instruments issued by non-financial enterprises in the inter-bank bond market, including short-term financing bills, medium-term notes and collective notes for small and medium-sized enterprises. it is the most flexible direct debt financing tool in China at present, which provides a good product platform for solving the financing difficulties of small and medium-sized enterprises.

Collective medium-term notes are organized and coordinated by an institution (lead underwriter or local government agency) as the leader to organize and coordinate a number of issuing enterprises, and apply to the Association of Bank Dealers in a unified way. according to the principle of "unified naming, separate liabilities, unified guarantee and collective issuance", medium-and long-term corporate bonds issued to the public are an innovative model to effectively solve the financing problems of small and medium-sized enterprises. In March 2009, in the face of the impact of the financial crisis on the economy and society, the People's Bank of China and the China Banking Regulatory Commission jointly issued the "Guiding Opinions on Further Strengthening the Adjustment of Credit Structure to Promote the Stable and Rapid Development of the National Economy", which proposed "in the inter-bank bond The market expands the issuance of financing tools such as short-term financing bonds for agricultural enterprises, collective bonds for small enterprises, and agricultural credit asset-backed securities, broaden the sources of funds for agricultural financial institutions and the financing channels for agricultural enterprises". The conditions of the collective note issuing enterprise: perfect governance structure, clear equity structure, continuous profit in the past three years, net profit is best more than 10 million, in line with the national industrial policy guidance, net assets of 50 million or more. The issuance amount of each enterprise shall not exceed 40% of the net assets of the enterprise, the maximum amount shall not exceed 0.2 billion yuan, and the term shall not exceed 3 years. By the end of 2010, 8 bills had been issued nationwide, and 47 enterprises had issued a total of 3.295 billion yuan, with an average of 70.1 million yuan per enterprise. Among them, 25 enterprises in Shandong had issued 2.29 billion yuan, with an average of 91.6 million yuan per enterprise, accounting for 69.5 percent of the country's total.

3, private equity investment fund financing.[7]

Private equity funds use equity investment as the mode of operation, invest in the equity of non-listed companies, inject capital and management experience, promote the growth of the value of the target company, and finally exit through listing, mergers and acquisitions, and equity swaps. Private equity funds not only value the financial indicators of small and medium-sized enterprises, but also pay more attention to the intellectual property rights, brand value, industry resources and industry prospects of enterprises.

4, the use of multi-level capital markets.

(1) The Growth Enterprise Market was opened on October 30, 2009 to encourage technology-based start-ups to be listed on the Growth Enterprise Market. The conditions are: a joint stock limited company established in accordance with the law and has been operating continuously for more than three years has made continuous profits in the past two years, and its net profit has accumulated in the past two years Not less than 10 million yuan and continued to grow; or profitable in the most recent year with a net profit of not less than 5 million yuan, the growth rate of operating income in the last two years is not less than 30%. The total amount of the issued share capital of the enterprise shall not be less than 30 million yuan. At present, there are 201 listed companies on the Growth Enterprise Market in Shandong Province, with 211 shares and a total raised capital of 207.5 billion billion yuan.

(2) Tianjin Equity Exchange opened in September 2008 to provide a trading platform for the equity of non-listed companies and non-public companies. It is characterized by low threshold, which can raise funds in small amount, many times, quickly and at low cost. Each time, it can realize direct equity financing for enterprises from 1000 to 30 million. The cost is 1/3 to 1/5 of the open market, and each time is completed in 3 to 4 months. At present, there are 73 listed enterprises on the Tianjiao Stock Exchange, with a total market value of more than 10 billion yuan.

The above financing methods have certain standards and thresholds. Small and medium-sized enterprises should choose slightly higher standard financing methods according to their own conditions, and improve their own structure and functions in the process of financing, so as to achieve the purpose of financing and promote development.

The business content of 3. lawyers in SME financing.

Because financing is the eternal topic of enterprises, lawyers can make great achievements in enterprise financing, explore high-quality enterprises and cultivate good enterprises that are not perfect. Although it may take a long-term and unremitting process, with the cultivation of enterprises and the emergence of opportunities, enterprises and lawyers will eventually move towards a broader market together.

1. Give full play to the role of intermediaries and integrate resources

Lawyers should have a certain degree of understanding of the financing field. On the one hand, they maintain cooperative relations with investors and project managers to provide them with good enterprise resources and project resources; on the other hand, they can make use of client resources to get to know entrepreneurs of various industries in the downstream, introduce financing channels to them, and carry out extensive publicity.

Whether it is issuing collective bills or listing on the Growth Enterprise Market, it will be a reborn process for SMEs themselves. Entrepreneurs are generally hesitant about new financing methods because of the pressure of information disclosure, changes in control, changes in management rights, financing costs and many other factors. Lawyers should give full play to the role of intermediary agencies to make short-sighted entrepreneurs realize that although new financing has to bear more obligations, responsibilities and pressures, in the long run, this process can promote enterprises to be more in line with laws and regulations. in line with the advanced and scientific management model, a small payment may bring huge returns, and the new financing method is an opportunity for small and medium-sized enterprises to enter the capital market.

2, to provide the improvement of corporate governance structure and other daily services.

Most small and medium-sized enterprises have non-standard problems, such as financial accounting system, governance structure, independence and so on, so the standard of new financing methods is higher for most enterprises.

When providing daily legal services to smooth business clients and outstanding entrepreneurs, lawyers should focus on raising such issues and inculcate them with the concept of modern enterprise system. It can be said that this is a difficult task, but based on the professional knowledge of lawyers, it is very appropriate to play this role, and the final effect is equivalent to lawyers cultivating their own high-quality enterprises.

3, due diligence and the issuance of legal opinions.

Legal due diligence to control business risk originated in Western countries and is now one of the main sources of business income for intermediaries such as Western law firms. In many business practices in our society, due diligence has also become a regular procedure. In the above-mentioned new financing methods, lawyers are required to conduct due diligence and issue legal opinions, which is an indispensable link.

End of 4.

During the 12th Five Year Plan period, the pace of China's financial innovation and multi-level capital market construction will be further accelerated. The financial service system suitable for the needs of small and medium-sized enterprises, the gem, the new third board and the property rights trading market supporting the main board and the small and medium-sized board will be basically formed. Lawyers should pay attention to and actively use the financial market and capital market to provide services in the legal perspective and resource field for the financing of small and open up a broader market.

This article won the third prize of Jinan lawyer's business paper selection in 2011

References:

[1] Luo Danyang. Private financing for small and medium-sized enterprises. Beijing: China Financial Press, 2009.

[2] Yang Juan. The financing structure of small and medium-sized enterprises: theory and Chinese experience. Beijing: China Economic Publishing House, 2008.

[3] Zhang Chaoyuan, Liang Yu. SME financing channels. Beijing: Machinery Industry Press, 2009.

[4] Zhao Guoxin. Small and medium-sized enterprise financing. Beijing: Higher Education Press, 2008.

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[3]Data from the Office of Small and Medium Enterprises in Shandong Province.

[4]Wang Desen. Small and medium-sized enterprise financing problems and countermeasures. Economic Research Guide. 2007.(2)

[5]Lu Yan, Zhang Meng. Analysis of the financing difficulties of small and medium-sized enterprises in China [J]. Chinese Business, 2008,(3).

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