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Innovations and Financing of SMEs Part I: SME Financing and Credit Rationing: The Availability of Funds
Abstract
Small and Medium-sized Enterprises (SMEs), as a major sector of the economy, have unique characteristics in terms of organisational and financial structures; reflecting the interest and strategy of the owner and financiers. With regard to the recent global financial crisis, the terminology ‘Credit Crunch’ describes a shortage in financial funds and concerns most businesses as well as financiers. On the one hand, financiers (lenders) complain about weak financial structures (especially lack of equity) and high risks investments of innovations and on the other hand SMEs (borrowers) accuse financiers for a shortage of financial funds or non-transparent and demanding credit conditions. This chapter describes various financing options and gives rationales for the credit rating process and credit conditions building the base for financing decisions. Furthermore, by discussing the topic of ‘Credit Rationing’, the authors demonstrate the impact of credit conditions on management decisions in order to justify the rationing of credits. This chapter also provides the necessary introduction and background to the understanding of the next chapter “Part II: Case Study of German SMEs in 2010”.
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