Problems and Solutions with Direct/Indirect Financing Market for SMEs

초록

The recent paradigm change to knowledge-based economy brings about much serious market risks to business, in particular to small and medium companies (SME), which requires direct financing such as issuing bonds and stocks rather than indirect financing such as bank loans. However, SMEs in Korea considerably depend on indirect financing. In 2012, 99.4% of Korean SMEs financing comes from bank loans, while issuing securities (bonds and stocks) takes only 0.6% of the total financing. On the contrary, major companies get 61.5% of their financing from bank loans and 38.5% from issuing securities. These numbers indicate that Korean SMEs face serious financial problems of high cost and low profit by using loans especially in the economic downturn. In this paper, we investigate the financing problems Korean SMEs experience and try to find solutions for the problems. The solutions focus on boosting up direct financing for SMEs. The direct financing market, named pre-board, was open as a third market in 2000 only for SMEs and innovative companies to get financing and secure liquidity by issuing securities. However, it has been snubbed by investors due to the dependence of SMEs on government policy loans as well as many fraudulent activities and unclear financial practices. This phenomenon is quite contrary to the cases in the countries like U.S.A (NYSE Alternext), England (London AIM), German (Entry Standard) and Japan (Tokyo AIM). The reason the direct financing markets of England and U.S.A are considered successful can be attributed to the fact that in those countries credit evaluation is driven by private sector rather than governmental sector and the capability of the private sectors is quite high. In this paper, we provide some examples of success and develop alternatives such as resolving information asymmetry, crowd-funding, new product development to solve the problems.

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