On private loans: financing SMEs

I. Introduction (a concept of private lending for private lending concepts, theorists have done some research. Is generally believed that private loans are credit corresponding with the regular. So, broadly speaking, private loans can be defined as the addition outside the regular borrowing loans, it is in the national macro-control and financial supervision, the official statistical reports are not being disclosed, are not subject to legal protection, is a non-formal financial activities. Some scholars also said the private lending for private financial or underground banking, etc. is the private lending market economy conditions the inevitable product of corporate finance activities in the services provided by formal financial institutions and structure of the total supply shortage exists in the case, but also a necessary complement. borrowings purposes, private loans can be divided into three categories: family life, sex, agricultural production and business nature of civil subject is limited by the generation of purely civil body, not including financial institutions, which can occur in natural persons, legal persons and other organizations of the room. private lending is a civil act, it is not a private investment behavior. I believe that private lending mainly refers to alienation from the formal financial institutions outside the official, non-financial institutions in the society of individuals, enterprises and other economic entities money between funds and transferring the value of the standard principal and interest payment activities.

(Two characteristics of private lending private lending, compared with the regular loans there are many differences, the major private lending has following features:
1, the broad participation in the main body including urban residents, individual industrial and commercial households, private business owners, farmers, enterprises and institutions and even the staff, of which most borrowers individual businesses and private owners, lenders, including financial prosperity businesses and business owners, and even some village cadres.

2, the breadth of sources of funding as the main broad participation of private lending, their funding sources also has a broad 7. Not only include farmers, individual industrial and commercial households and businesses of its own funds, and even private equity funds, credit funds, foreign hot money, also in the field of private lending.

3, the flexibility of borrowing funds in order to shorten the time to improve the efficient use of funds, private lending to cash-based, and flexible trading patterns, generally do not have collateral, some verbal agreement to play some IOUs, although in recent years, civil increasingly standardized lending procedures, but with the regular loans compared to the procedure is still simple.

4 loans in various forms

The traditional form of private loans, there are unions, Cooperation, private lending, silver back, enterprise funds, private banks, pawn shops, etc., and with the continuous development of society, people living patterns, changing consumption patterns, in the form of private lending also 'times', there are some new features in the form of considerable age, such as Zhejiang Automobile Club, represented by some of the club both private lending practices, but also some non-lending activities such as the Internet, through chat room completed.

5, a long-term borrowing limit changes in use as private loans, from the nature of mutual economic mutual protection to commercial nature of the financial intermediation, loan term also will be changed. Currently, many private lending period is one year or more.

6, the lending interest rate market in the present case, private loans in addition to very small part of the loan or interest not only refer to bank lending rate, the interest rate is follow the market, and is generally higher than bank lending rates, particularly for investment produced by private loans, higher interest rates than bank loans a lot, and some private loans are illegal loan sharks.

(Three formal relationship between lending and private lending in the informal lending is the official financial system under the formal financial institutions, enterprises, individuals and other economic entities of society between the monetary value of transferring funds to a standard principal and interest payments and activities . Overall, private borrowing and lending exists between the formal and competition both complementary relationship.

1, the complementary relationship in China, the formal financial institutions mainly provide services for the state-owned economy, the flow of its funds mainly state-owned enterprises, although the formal financial institutions to support non-public economy is also rising in recent years, but with the support of the public economy compared to the still insufficient, while private loans mainly for non-public ownership economy, especially non-economic services, the main flow of private capital for SMEs, the self-employed and farmers. As many civil SMEs, the self-employed and farmers is difficult to obtain production from the formal financial sector and development need funds, private loans can only be turned to support from this perspective, private lending to some extent make up for the lack of formal finance, with formal lending exists between certain complementary relationship.

2, competition between private lending relative to the formal lending flexibility, simplicity, speed and other advantages. Simply put, private loan is an agreement between creditors and debtors to borrow some of the bank's internal think outside the box without limitation, as long as both sides recognized the Yes, the process is simple, formalities are relatively simple, this is the greatest charm of private loans. In addition, the private lending market interest rates higher degree, to better guide the flow of funds to meet the needs of both lenders and borrowers. private lending for the formal lending of these advantages, would have put pressure on the formal lending virtually, with the private lending market share continues to increase, both in the market competition will become increasingly fierce.

Second, the current development of private lending (a large private lending as the economy booming, China's small and medium enterprises, especially SMEs, the private individual and private that there has been a rapid growth momentum, increasing the size of private lending .2007 large business sector, according to survey conducted in Anhui Province, Anhui Province, more than 50% of funds as the primary constraints to SME development, 80% of SMEs rely mainly on private financing solutions to the liquidity flow. Hebei Industry and Commerce in June 2007 on 'the business and financing conditions,' research shows that poor due to normal bank lending channels, private loans are quite prominent, and 177 valid questionnaires, 41% of responding companies have private lending company in Hunan Province, according .2008 Investigation Team to conduct on private finance survey, SME financing financing to rely on private loans accounted for 50% of the survey industry, agriculture accounted for 15%, construction 10%, manufacturing 25%, 20 restaurants, %, 15% real estate, business accounted for 15% of these surveys can be seen from our present requirements of private lending for small and medium enterprises is quite large, private lending has great market growth. involvement of private capital market financing not only enrich the financing channels for SMEs, and has financing fast and easy transfer of funds, low threshold edge.

(Two major private lending to the economy in cities and counties within the scope of private lending has a very strong relationship between the nature of loans, that is, private lending generally occurs in the production and life of a close relationship exists between the social body. As the scope of people's limited living space, private loans typically occur in a limited geographical scope, according to spot checks, private lending generally occurs in our cities and counties within the economy, especially the relatives and friends, neighborhood or village between, between the towns and so on.

(Between three large private loans generally kept private loans originated by the logic of analysis, we have learned that the first non-lending practices that occurred in individual or household as a unit of the social body and the daily life of simple production in The history of development today, individual or household as a unit between the main body of the society still exist in large numbers of private lending and became the maximum amount of private lending takes place, this point is true both urban and rural areas. After ten years of private lending development throughout the country has become an important economic phenomenon not only in economically developed regions such as Zhejiang, Wenzhou, Fujian coast, Guangzhou, Shenzhen, Hainan, and other common, that is, Sichuan, Guizhou, Shaanxi and other poor areas of remote , is not uncommon.

Third, the reason for the existence of private lending, compared with the regular lending, private lending to SMEs is very active, although countries such as private banks, rural cooperative funds and other private financial institutions, illegal gray be sorted out, but these illegal financial institutions stubbornly to exist. Regardless of how its legitimacy, but with this happening in real life it is necessary to closely related, has its own rationality.

(An SME loans has not been resolved a long time, small and medium enterprises has been difficult loans, loans. The reason why such a situation, mainly because: first, imperfect credit system for SMEs, banks generally credit crunch behavior. Second, the limited role of guarantee system and operation mechanism is not perfect present various types of government-led guarantee agencies more than 200, but the distribution is scattered and uneven. and guarantee agencies generally smaller, self-financing institutions in order to reduce security risks. can only improve the security conditions and strictly apply the relevant security services, which severely limits the SMEs financing. Third, the bank credit funds of the principles of safety and effectiveness of the guidance of the decision of the bank credit funds as well as pillar industries will inevitably tend to monopolize industries.

(Two forms of private lending flexible, convenient According to the survey, private lending both in urban towns, mainly to and from regular relationship, no need for cumbersome as the commercial banks as collateral security procedures usually write an IOU or oral agreed to solve the problem. because such borrowing is out of convenience, the private lending market has continued to expand.

(Three primary functions of financial institutions after the financial system atrophy, in agriculture, industry, building grass-roots network merge the four major banks, coupled with centralized credit management system, leading to the grass-roots support for urban and rural economic development to some extent of functional atrophy while the rural credit cooperatives and other small financial institutions, financial strength, service capabilities to face this situation and the environment, it is difficult to fundamentally change or to fill the vacancy. the internal driving force of economic development and the role of market discipline in itself. certainly contributed to small private lending companies no choice but to choose the road.

(Four high-return, high interest rates and further activation of the private lending market because of non-governmental lending rates higher than bank loan interest rates several times the same grade, high-return, high interest rates to promote its development has accelerated, especially in the current low interest rates, low-return period. high interest rates, the temptation of high returns is very obvious.

(Five to kinship, geographical as a link relationship-based folk credit operation mechanism of an important basis for private lending risk guarantee mechanisms to rely on relatives and acquaintances to maintain. Private financial institutions in lending generally does not require collateral or security, mainly by the borrower's personal credit or broker the one hand that the relatives and friends of lending activities, with the protection of moral restraint, and this moral restraint is often more effective than legal sanctions the other hand, is based on individual credit-based loans , that's happened is that a personal relationship, the borrower has unlimited liability for the borrower when the borrower fails to do so also, the private financial institutions with IOUs can appeal, the court will take a personal loan in the form of disputes to be accepted. private lending may also be required in lending guarantees, but there is no strict limit collateral, private financial transactions and the two sides to bypass formal financial institutions government legal minimum transaction amount of restrictions on many of the formal financial markets can not guarantee anything as in the private financial markets can be used as guarantee, so although private loans are non-economic activities, but it follows the traditional features with local codes of conduct.

(F) both lenders and borrowers have a comparative advantage in terms of credit for private lending, private lending way he chose to use their own funds on hand or not choose the way in other investments, it is because in this way can give him He thinks the biggest comprehensive income, of course, referred to here should not be confined to the interests of the pure substance Links to free download http://eng.hi138.com
interests but rather as a broad understanding such loans Despite the relative safety of people do not want choice, but lower-yielding bank savings and the choice of riskier but more profitable industrial investment is a benefit, then such lenders do not want to choose high-risk but high-profit industrial investment and the choice of the funds to lend to others is a benefit ride to be proceeds from this point of view, the example cited among the reasons for the existence of private lending, such as bank deposits, low interest rates, financial and investment environment is not active, the incentive for loan sharks etc., can be classified as non-borrowers in terms of comparative advantage among the for the borrower is concerned, there is also a huge comparative advantage, for example, when the borrower in order to expand production and management could not obtain funds from formal financial institutions , they can choose to give up plans to expand production, but why he was chosen to select the price is higher than the normal financial loans sharks and even high interest private loans private loans? The reason there is only one, that is, on balance, the borrower to determine , he chose to private loans to obtain funds to expand production to the benefits he is likely to or will choose private loans to pay Gregory, he would still be profitable, it is clear that, for borrowers, this is certainly a comparative advantage, then, for example, borrowers can go to the bank would lower interest rates and loans, but he took a loan for the processing of time and effort than the price paid by private lending sharks with which we relatively low interest loans between financial The spread is even larger, so that borrowers turn to private loans above listed are the comparative advantages of the borrower, so long as these advantages remain, private lending will remain.

Fourth, the final analysis, feasibility analysis of private lending, private lending will be the reason, the main reason is that formal financial capital supply and demand contradiction between social capital. At this stage, on one hand the pursuit of high profits of commercial banks, low risk, a large number of SMEs due to lack of credit, leading to its external source of financing channels, the development has been greatly restricted; the other hand, a lot of private capital to invest or not invest in a suitable way to find this way, small companies would have to turn to private finance. private financial institutions and small and medium fish and water, frequent exchange of information, information acquisition costs are lower, reducing the information asymmetry. All this makes the life of private lending with a strong growth of the space.

(A private finance in addressing the plight of the advantages of SME financing historical data show that as of the end of 2004, amounting to the scale of private capital of Guangdong has more than 1.2 trillion yuan. The industry said that if the legalization of private lending, private capital is expected to be an inventory of these Obviously, small and medium enterprises can not completely rely on the formal financial channels of financial support, empirical evidence also shows that SMEs in the formal financial markets can only get a limited financial support from private lending can be seen in the process of SME financing has a very large advantage.

(B credit constraints advantages of private lending at a fixed range of geographical area, kinship network or circle of acquaintances, often with a safe, reliable, risk-sharing, mutual benefit and other integrated functions, and thus to kinship, geographical center of the network to become non-economic relationships The most fundamental basis of credit activity and it is so important that any person associated with it are not willing to lose in the circle of friends and acquaintances affinity network of contacts carried out, are a sincere, disloyal behavior, etc. Specific to the settlement of private lending, although there is no statutory provision, but participants have to abide by established practice. private finance is simple, can be different for corporate credit, use of funds and other design personalized credit contracts, sometimes just a few minutes to apply for a loan from a good business while the formal financial sector is relatively more complicated loan procedures, loan approval time was needed, and funding needs of SMEs, 'short, frequent, urgent' feature does not adapt, and so on down the loan approval may delay the company's investment opportunities, formal financial institutions, loans can not meet the needs of SMEs.

(Three high efficiency in the allocation of funds of private lending is largely improved efficiency in the allocation of funds, private banking generally have clear property rights system, this property rights system has a good incentive and constraint functions of the principal-agent problem of private lending was less more rarely in the state-owned commercial banks, there is often excessive risk-taking or risk aversion tendencies. private lending organization and operation of the shareholders often close relationship between their costs of monitoring and the possibility of adverse behavior will greatly reduced. private lending clear property rights system has many similarities with the small and medium enterprises and compatibility, making it easier to form between integrity and collaboration. private lending is a consensual contract deal of market-based financing mechanisms, loan people are generally rational behavior of 'economic man', the lender without any administrative intervention to put funds into their own ability to repay the best guarantee of the borrower or the hands of the best expected return on investment, while the borrower, because the capital supply side is the property rights of private financial institutions, and strengthen the borrower's credit constraints and repayment obligations, the borrower must determine the reasonable and efficient use of resources. contribute to the development of private financial the effective flow of funds, to a certain extent improve the efficiency of the allocation of funds.

(D to enhance the ability of financial markets, once part of the business will be transferred to the individual to do, then some of the formal financial institutions can focus to a larger lender, on the one hand the costs are reasonable on the other hand, to meet a more the needs of large lenders, private lending will limit the scope of financial institutions to absorb the most valuable customer resource and growth as part of the remaining funds would simply duplicate those in need.

Specialized households may be borrowing has grown, and then there is the desire to further expand the business, but it still is not contradictory, some of the formal financial institutions can absorb it as a shareholder, which is encouraged by the policy, once into the formal financial institutions, behavior by the relevant regulations constraints. Conversely, if the shareholder has this capability, the operation of the formal financial institutions is a catalyst, which is actually very relevant analogy of the birds and cages, cages with the birds grew up, both sides can be very space for development, if one day a bird want to fly alone, will soon run into the cage.

(Five substantial private capital, social investment channels

China has a hold out the traditional residents, and thus a relatively large amount of social currency deposits. And our savings deposits of urban and rural residents is also a very fast growing year by year, so the huge potential of China's private capital, but, although it is China's financial system has been the rapid development of the choice of investment channels for the residents is still very limited deposit rate in China is low, although the increased interest rates, but lower than China's inflation point of view, interest rates still low, plus interest, tax levy, private deposits from the formal banking sector gains are very limited. capital market is not perfect, fraud, and other serious incidents Heizhuang endless, greatly damaged the confidence of small investors and some guaranteed profits for private infrastructure investment funds without open. residents a huge capital investment in the narrow channels of wealth and disproportionate. people a lot of money lying idle, while the non-financial activities and has a high return in benefits or reduce motivation, driven by large private capital flows into the private financial markets, This has prompted private lending has become a new way of financing exist in the financial markets.

V. Obstacles to the development of private lending private lending in view of the importance of economic and social role, regulate the development of private lending, private lending proper way to solve a very necessary and urgent, while correct, profound understanding hinder the development of many obstacles to private lending factors regulate the development of private lending is a prerequisite.

(A legal obstacle to this is mainly reflected in three aspects: First, there is no clear legal private lending in the financial system in the proper position, the second is the lack of legal constraints and norms related to private loans, third is the lack of legal protection of private lending legitimate rights and interests of participants.

(B regulatory barriers mainly reflected in the regulation of private lending institutions and regulations related to the lack of supervision and management techniques were not advanced enough and strict supervision of the irrational attitude.

(C) the operational barriers to services provided by private lending institutions and individual agency and intermediary services in the decentralized management of the side, basically fragmented, decentralized management, organizational structure is also very incomplete.

(D credit business credit currently lack institutional barriers in our society credit has become the most serious, the most prominent problem, especially SMEs, because of its small size, relatively weak competition, lack of funds and other birth defects, making the credit lack of more serious behavior. Links to free download http://eng.hi138.com

six, private lending standard measures (a set up <<new private lending institutions Act Compliance>>

Build <<new private lending institutions Act Compliance>> to allow private capital to create new compliance private lending institutions, specifically the compliance of new private lending institutions should co-exist with the existing formal financial institutions, with the same qualification of legitimate financial institutions , to clarify its function is to specialize in legitimate work of private lending, private economic units to serve so that the positioning of the private loans to be clear with the law, specified activities of private lending is lending to each other with the regular complement and promote each other to achieve civil formal borrowing and lending of benign coexistence.

(B build on existing laws to regulate the activities of private lending in the legislation, you can learn from other countries and regions of the relevant legislative experience in the creation of private lending in the civil law part, while the financial legal system to guide the development of relevant laws and regulations are private lending organizations and their behavior has standardized on the one hand, to clearly distinguish between existing legal legal ingredients of private lending and illegal ingredients, its precise definition, respectively, clearly lawful private lending activities and scope of the other hand, civil rights and obligations of both the main lending, trading, contract elements, the maximum borrowing, interest rates, breach of contract and rights protection, etc., should also be clear in legal form, so that the private lending activities and forms are legally binding.

(C construction of new private lending institutions compliance market access system for opening of new private lending institutions compliance market access restrictions, set up to allow private capital to initiate the establishment of new private lending institutions compliance with the importance of reality, but if act with undue haste, poor standards, China's financial markets will give a huge impact and adverse effects in actively promoting the opening up of financial markets, the formation and development of new compliance process of private lending institutions in the current legislation under the principle of , should always adhere to and follow the principle of reasonable and prudent to promote the principles of positioning.

(D construct and transfer the risk of early-warning monitoring system must be established for private lending crisis early warning system, set up by the financial institutions risk assessment experts, coordination among the departments with regulatory responsibility to monitor the various risks and outside the region, and tracking analysis, forecasting, to establish Alarm release mechanism, a large financial risk for all kinds of harmful levels of assessment, and proposed countermeasures.

(E firm can not 'short-term loans with long'

As small and medium enterprises, we must recognize the characteristics of private loan funds and nature of any capital is profit-driven, especially private capital, which is its essence in folk borrow money, their costs will certainly be higher than borrow money from the bank High interest rates, is a distinctive feature of private lending.

Private capital to tell us the nature and characteristics of SMEs to borrow money to private, must not have the slightest idea of ??long-term use can be said that any legitimate domestic business activities, in the long run, its profit margins are unable to pay civil borrowing costs and any order to conduct business through private loans, investments, for the daily business operations, will not work if there is such a thought, is bound to fail.

(F strictly control loans to the company's total private debt, debt to total assets ratio is a modest business growth in the development process should be used in important ways. A reasonable balance, control of both the debt ratio in the total assets within a certain range, such as 50%, is safe. excessive debt, the enterprise has a potentially huge risk. Also, because private loans and high interest rates of short duration, short-term solvency of enterprises demanding, so people should control the amount of debt in total assets, total liabilities of ratio.

(G attaches great importance to private lending private lending rate lending interest rate is non-core, be sure to attach great importance to both lenders and borrowers.

First, we must understand the way interest private loans meaning private lending interest rate is calculated that there are many per annum, and more on a monthly basis, but also of interest on a daily basis, usually monthly interest, that sort of interest, so a bit of interest, monthly interest is talking about a few percent.

Second, enterprises should take the capacity of their own interest rates, not 'money eyes,' What funds do not dare to. SMEs in the use of these funds, should give full consideration to their capacity. Generally speaking, if the amount of money in one hundred thousand or one million small, the use of time in a month or three months, about 4 points of interest, from interest point of view the absolute amount of the payment can not be a big problem, but a few millions of millions of funds period is more than one year, the amount of interest is not a fraction of the best not to use.

Third, compounding the problem should pay attention to the SME loans to people, the best choice for a monthly or quarterly interest payment interest way. Everyday, take more interest when the borrower has. Interest on the principal amount will count in the, commonly known as 'beheaded interest.' In this way, the real interest rate is much higher than the agreed interest rate.

(Viii) strict compliance with the agreed repayment period of SMEs in the use of private loans, the repayment period must be strict compliance with the agreement. Must not be delayed as long as bank loans, otherwise the punishment would be devastating. First, if the collateral when the borrower is generally less than 5 fold, or even 1,2-fold, and breach of contract to go after the lender received collateral of SMEs in terms of large losses. The second is when the borrower have agreed on the breach of contract, and liquidated damages rate is much higher than the already high interest rates, and even calculate the compound interest high. default SMEs will face a possible bankruptcy, therefore, before the expiration of the borrower, certain raised enough money to return on time .

VII Conclusion This comprehensive analysis of the relevant circumstances of private lending, fair assessment of the social effects of private lending, which has a positive effect, but also negative effects, but overall, conducive to private loans as the lender is greater than the benefit disadvantages, so very private lending for SMEs and the need for space for its existence, but we also see the development of private lending hinder many obstacles factors, for these barriers we have to take appropriate measures to regulate for private lending in the SME financing played better, a greater role. Links to free download http://eng.hi138.com

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