Through a discussion of the developing field of crowdfunding and the cottage industry that is quickly rising around the ability to sell business equity via the Internet, Banker's Guide to New SmallBusinessFinance covers how small businesses are funded; capital market disruptions; the paradigm shift created by Google, Amazon, and Facebook; private equity in search of ROI; lenders, funders, and places to find money; digital lenders; non-traditional funding; digital capital brokers; and much more.
Financing Patterns of Small Firms: Findings from the 1998 Survey of SmallBusinessFinance 21 However, these observations are preliminary at best. Access to credit may also vary for minority owned firms because their financial and business characteristics are different from non-minority firms—they are often smaller, younger, and many with poorer credit ratings. A multivariate econometric analysis utilizing additional information on factors that affect the borrowing and lending conditions in the smallbusiness credit markets should be performed to provide a better understanding of various factors that contribute to the differences in the patterns of financing observed between minority and non-minority firms.
Chicago is enlivened by the presence of many ethnic neighborhoods, which are reflected in the citys smallbusiness sector. This makes Chicago an excellent loca- tion for studying smallbusinessfinance in ethnic communities. The topic is important because the availability of capital may depend, in part, on ethnic differences in factors such as the use of informal financing (loans or gifts from family, friends, or busi- ness associates) as opposed to formal financing from banks and other financial institutions. We still have much to learn about business access to capital in an ethnic context. To shed some light on these matters, the Federal Reserve Bank of Chicago and researchers from the University of Chicago conducted surveys in two Chicago neighborhoods, Little Village, a predomi- nantly Hispanic community, and Chatham, a predomi- nantly Black community. These communities were chosen because they are distinct and well-recognized ethnic neighborhoods with viable smallbusiness sec- tors. Although most of the business owners inter- viewed are either Black or Hispanic, other ethnic groups are represented. One of the important features of the surveys is that they shed light on informal and formal sources of financing for both households and businesses.
159 Based on relationship lending and banking market concentration theories derived from Petersen and Rajan (1994 and 1995), this study falls into the research area of relational bank switching where there has been a few empirical studies with an exception of Ongena and Smith (2001), Farinha and Santos (2002), Berger et al., (2005), Ioannidou and Ongena (2010), Degryse et al., (2011) and Gopalan et al., (2011). It contributes to the existing literature in the following unique ways. First, differing from the studies on bank side (e.g. Berger et al., 2005), this chapter focuses on the relationship with banks from the perspective of small businesses, such as the duration, scope and non-bank relationship etc. Second, different from a passive bank switch, e.g. because of bank mergers (Degryse et al, 2011), the current study looks at a voluntary selection of lenders where other bank relationships exist. It also considers all possible relationships with any types of financial institutions rather than banks only. Thirdly, the samples are typical small businesses which are smaller than those samples used by Onega and Smith (2001), Farinha and Santos (2002), Gopalan (2011) and Ioannidou and Ongena (2010) 23 in the similar areas. Fourthly, by using samples from U.S., I could be able to investigate how the effects of relationship banking changes over local capital market concentrations which have been identified as an important element in smallbusinessfinance (Petersen and Rajan, 1995; Han et al., 2009a). Fifthly, this chapter investigated not only the determinants of “switching behaviour” of the most recent loan application, but also the impacts of “switching behaviour” on the probability of loan application to be approved by the financial institutions, the cost of the loans and the availability of the loans. To my best knowledge, it is the first research to investigate the impacts of “switching behaviour”
A first key argument in the conventional paradigm is the so-called “small bank advantage” (Elyasiani and Goldberg 2004; Jayaratne and Wolken 1999; Carter, McNulty, and Verbrugge 2004; Shen et al. 2009). Many empirical studies in the 1990s found that small-scale banks tend to have higher exposure to SMEs because of their stronger ties with the local community and reliance on relationship lending (Berger and Udell 1995). Studies such as Berger et al. (1998) show that the processes of mergers and acquisitions of banks in the US market led to a relative reduction of smallbusinessfinance, confirming that the increase in size of a the bank has a negative effect of SME lending. De Haas, Ferreira, and Taci (2010:390) argue that there could be an implicit segmentation based on the comparative advantage of financial institutions: “large banks may have a comparative advantage in lending to large customers as they can exploit scale economies in evaluating the hard information that is available on such customers. Small banks, however, may not be able to lend to large companies because of size limitations. They are, for instance, more constrained by regulatory lending limits. Small banks may also have a comparative advantage in processing soft information on SMEs”. A related strand of literature analyzed the role of bank ownership in SME finance and found that foreign banks are less likely to engage with SMEs than domestic banks. For example, Detragiache, Tressel, and Gupta (2008) looked at the effect of foreign bank involvement on financial sector development in low- income countries from both a theoretical and empirical point of view. They find evidence that low- income countries with a stronger presence of foreign banks have weaker credit and slower growth of credit to GDP. They also find that loan loss provisions and loan loss reserves are higher in domestic banks than in foreign banks (Detragiache, Tressel, and Gupta 2008).
Labour has a better plan. We will support the hundreds of thousands of small businesses whose innovation and dynamism will drive our economy forward, to create the broad-based recovery we need to get the deficit down. Labour will help control costs for small businesses, cutting and then freezing business rates for more than 1.5 mil- lion smallbusiness properties, while maintaining the most competitive rate of corporation tax in the G7. We will freeze energy bills until 2017, so prices can fall but not rise, while we reform the energy market to work better for business customers. We will tackle late payment by requiring larger businesses to set out the extent of late pay- ment they have been responsible for, and the action they have taken to compensate suppliers.
The credit crunch small firms are facing may be hindering economic recovery. The conventional wisdom is that smallbusiness will be the driving force that leads the nation along the path of economic g rowth, because nearly half of the nation’s output is produced by small firms (Samolyk and Humes 1993) and because many economists believe that employment growth will occur first among small firms (Birch and Medoff 1993). There is some contro v e r s y, however, about whether smallbusiness is normally the driving force (Davis, Haltiwanger, and Schoh , forthcoming). While we cannot rely solely on smallbusiness to lead the economy out of stagnation, we do recognize that it can play an important national role and, in many cases, a decisive regional and local role. If, as the anecdotal evidence appears to indicate, the credit crunch is preventing small f i rms from undertaking potentially profitable projects, then eff o rt s must be made to increase the supply of credit to smallbusiness. However, we do not want to overemphasize the importance of smallbusiness lending; depressed neighborh o ods will re q u i re a variety of programs to restore vitality, including programs to increase mortgage and home rehabilitation lending, to provide more training and more jobs, to increase the supply of payment and savings facilities, and to promote entrepreneurship.
While the implementation of these new capital requirements was important for macroeconomic stability, they have also played a critical role in preventing small businesses from accessing working capital through the ongoing credit lines that are bank overdrafts. And without working capital, small businesses struggle to survive, invest, and grow, even as the economic recovery continues.
In general, driven by secured funding needs, more originators are expected to return to the market (especially from Spain and Italy, but also other countries), however, for the time being and as explained above, the majority of these transactions will be for ECB placement and structured in line with the respective eligibility repo-criteria to minimise the funding costs of the originators (Moodys, 2012b). In this report we mentioned earlier the tightening of credit conditions for SMEs; although this development has a direct negative impact on the SMEs it has indirectly a positive effect for new loan vintages, and hence the quality of newly securitised portfolios, as banks have become more risk averse. Securitisation remains an important tool for the refinancing and risk/portfolio management of banks. Going forward, a continuation of the gradual recovery of the European Structured Finance market is expected. However, this will not only depend on the development of market fundamentals and the enhancement of investors’ confidence but also strongly on the direct and indirect impact from regulatory priorities. Hence, future/potential regulatory treatments of SMESec (i.e. in the context of CRD IV and Solvency II) have to be duly analysed. Investors will only return in volume if they regain trust in the quality of the transactions and if there is satisfactory secondary market liquidity. Originators will return if transactions are economically feasible. For both, a stable and reliable regulatory framework is a key precondition as well.
the effects of fiscal stimulus waned, and fiscal austerity measures were implemented. In fact, the global recovery seems to be consolidating, and there are signs that the recovery is becoming self- sustaining, with consumer and (non-financial) business demand taking up the slack left by the withdrawal of government stimulus. Non-financial corporate balance sheets look increasingly healthy, which should lead to increased private investment, and although unemployment remains high in certain advanced economies, labour markets seem to be improving, resulting in increased private consumption (see figure 2). This relatively smooth transition from public to private demand has helped alleviate concerns of a double dip recession.
It was unprecedented to have so many industry bodies working together on the same initiative and engagement has been very high. The Guide certainly allows businesses to consider a wider variety of forms of finance and we also want to encourage businesses to get in touch with chartered accountants and finance providers, look for more information and understand how the different options will work for them. Greater availability of information plays a vitally important role in helping businesses access the finance they need to grow and create jobs. So the role of professional advice cannot be underestimated. There is no real substitute for getting the right advice and figures from the SME Finance Monitor show that only 22% of companies seek advice before applying for a loan, although this is up on prior years where the percentage had been as low as 18%. The British Business Bank data also shows that companies who do so are more successful in their applications for bank finance, most often because they have provided more information. People can be reluctant to take advice, which is why the ICAEW has introduced the Business Advice Scheme, providing free consultation to micro and small businesses not yet supported by a chartered accountant via 4,136 offices throughout the UK.
dataset including loans to small businesses (i.e. firms with less than 20 employees). We verify whether MGIs make firms affiliated with them borrow at better conditions than other similar firms. To this aim, we use data on individual loans from the Italian Credit Register and the Survey on Loan Interest Rates. Since we are interested in identifying the effect of MGI affiliation on loan interest rates independently from the collateral posted by MGI itself, we focus on overdraft loans, typically not backed by any guarantee. In this way, we are able to verify whether or not the MGI willingness to post collateral is a good signal for banks. In other terms, we test whether MGI are better informed than banks about their firms and therefore if affiliation to a MGI convey a positive signal to banks on firm’s creditworthiness.
The Italian MGI system is heterogeneously developed among the three geographical areas, into which the Italian territory is typically split: north, centre, and south and islands (Mezzogiorno). MGI activity is concentrated in the north, where small and medium-sized firms are more widespread. MGIs are less developed in the Mezzogiorno in terms of number of affiliated firms, average capital of consortia and value of guarantees (Columba, Gambacorta and Mistrulli, 2006). This may be due to the small number of firms that have the necessary characteristics to join a MGI in this part of Italy, as well as three other factors: (i) the greater availability of public funds for firms located in the region, (ii) the relatively recent development of an MGI system there, and (iii) the high degree of opacity of SMEs in the region. At the end of 2004, credit guaranteed by MGIs represented around 8 per cent of total lending to SMEs in the Mezzogiorno, compared to 13 per cent in the centre and the north.
Despite the potential of P2P lending being a viable method of funding smallbusiness ventures, there has been very little published peer reviewed work to date on P2P lending and smallbusinessfinance – apart from a small stream of studies focus solely on rewards based crowdfunding (Agrawal et al, 2011; Mollick, 2013; 2010; Schwienbacher and Larralde, 2012). In general rewards based lending studies are concerned with the assessment of quality of early stage entrepreneurial ventures based on signals of quality that venture capitalists typically look for in their selection process. For example, Agrawal et al, (2011), based on data from Kickstarter.com, used a market of musicians seeking crowdfunding to understand whether crowdfunding relaxes geographic constraints on fundraising that are typical of venture capital firms. Mollick (2010) uses data from Kickstarter.com to examine crowd funded projects that match characteristics of more traditional venture capital backed seed ventures to determine what role geography and gender play in new venture finance within a crowdfunding regime. Other studies examine aspects of efficient communication and networking as determinants of early stage venture funding success (Schwienbacher and Larralde, 2012). Finally, the study by Mollick (2013), also based on data from Kickstater.com, offers one of the first generic analyses of how rewards based crowdfunding works; sharing insight on the ways in which the characteristics of (potential) smallbusiness owners and the way they present their ventures can affect entrepreneurial financing outcome.
Core Values: At the heart of any program or organization are its people. The SBIR/STTR programs can only achieve success through the individuals that influence or control its destiny. Individual behavior is defined by motive, and motive is defined by core values. Individual leadership, unity of effort, and personal accountability are all key behaviors required for the successful execution of this strategy. Sometimes the “normal way of doing business” can evolve to become a barrier to progress, and in these instances we must apply critical and reflective thinking to overcome it. We must operate in a way that allows us to break through existing operational paradigms. Cross-purposes, when they arise, should be examined using the lens of the customer and common goals. We must use data to identify trends and causal relationships between our activities and desired outcomes and define the optimum way forward. We must take a systems view of the program and avoid the urge to sub-optimize at the local level. We must apply these core values to guide our decisions and actions if we are to succeed in our strategy:
We recognise that we can do more to improve our relationships with business customers. We need to be able to signpost sources of further help clearly and explicitly, and deal fairly and equitably with customers who want a second opinion should the decision, or the way it is communicated, on a request for borrowing not meet their expectations. We have agreed to formalise improved customer service standards in a new Lending Code of Practice and will proactively subject each bank’s appeal process to robust and transparent external scrutiny. We also need to ensure that our staff are properly trained and equipped to provide the help and support our customers’ need, particularly smaller business customers who often rely on us for financial advice. We have agreed a number of actions; those actions are outlined on pages 42 to 45.
There have different types of the agency relationships these relationships have been built in order to do business with different stakeholders. The most common agency relationship is the management and shareholders relationship. In the case of management and shareholders relationship, the management of the business organization has worked as the agent and shareholders are worked as the principal. The management of the business of the business organization needs to do business for the purpose of maximizing values of the shareholders. To maximize the values of the shareholders, the management of the business organization has worked on the behalf of the shareholders. The conflict arises between shareholders and management is known as the agency conflict. The shareholders of the business organization have wanted to increase their values of the shares through increasing values of the firm. On the other hand, the management of the business organization has wanted to incased their salaries, incentives, bonus, and financial benefits. The salaries, bonus, incentives, and financial benefits for the employees are the operating expense for the business. The increment of the operating expense of the business has decreased the values of the shareholders. As a result, the conflict has been arisen between shareholders and management (Financial management, 2014).
Shuangcheng Street is a business center well known for its fancy imported products in Taipei City that was popular in the ‘50s and ‘60s. With the passage of time, the shopping population now congregates in the eastern part of Taipei City, and the fanfare of the old locality has gradually faded out. Taipei City has thus formulated the “The Night Market Renovation Plan of Taipei City,” and it has chosen Shaungcheng Street as the spot to centralize vendors for planning and renovation. Aside from affirming the qualification of vendors as its mechanism for dealing with local vendors, all vendors working both during the day and at night feature in the plan as a whole, with all of them directed to set up booths at the center of the road rather than on the two sides. As such, it helps
macro-variables in an attempt to explain cyclical behav- ior. While the theoretical basis for what has traditionally been referred to as the business cycle is of interest in try- ing to understand cyclical impacts on small businesses. None of the most recent business cycle literature has fo- cused on impacts by business size. It is also important to note, that while the nomenclature of the "business cycle" seems to imply regularity in economic ups and downs, current theory would refute that idea. Current thinking is that the economic "cycle" is the natural pattern of an ad- justment process that is triggered by a variety of shocks to the economy. It is likely that the adjustment process does not work in the same way each time and that it may not impact businesses in the same way each time.