2.1.The overview of the SMEs
Definition of SME
The importance of the SME
Sources of SME financing 2.2.The two types of SMEs financing
The internal financing
The external financing 2.3.The plight of SMEs financing
The internal reasons
The external reasons
2.4.Measures to improve SME financing
The role of SME
The role of bank
The role of public policy
Small and medium enterprises play a central role in the economy. SMEs are necessary for the increasing of employment and boost the number of innovations and economy growth (Ayadi, 2005, p.2). So what is a small and medium enterprise? It was in 1990 when the European commission gave the first definition to the SMEs in European Union. The Commission concluded that the definition of SMEs In January 2005. It is consist of four factors, the number of staff, annual turnover, annual balance sheet total and independence (Ayadi, 2005, p.4). Please look at the table 1.
Table: EU definition of an SME
Moreover, the rapid development of SMEs not only can promote the increase of GDP but also can improve employment rate. In addition, SMEs are the main force of innovation closely related to economic growth. In China, SMEs account for more than 98% of all enterprises, which is offering new jobs for more than 85%. SMEs are taking up 75% of the new products. About 65% of the invention patents are published by SMEs. Which is also accounting for 60% of GDP, 50% of the tax, respectively. SMEs are very important to employment, innovation and economic development (Cheng, 2013, p1). UK is the one of the world’s largest economies, which is also the center of finance and a significant trade entity. UK is also the richest and developed country. SMEs also play a central role in the European economy. The financing of companies generally offered funds from bank or some financial institutions. However, due to the scale of SMEs are small and the credit is so poor lead to it is difficult to get capital from bank or financial institutions. For example, China is a developing country and economy belongs to socialist mode，started late and economic has many disadvantages. Especially in the part of raising money in SMEs are difficult. SMEs frequently are trouble in obtaining capital or credit，particularly in the beginning. Their limited resources are the reason that they cannot acquire new technologies or innovation. However, SMEs are the pillar of the national economy. So we must take measures to solve the problem of SMEs financing and encourage the development of SMEs. Only in this way, can the country’s economic development rapidly.
So this essay is to study the financing of SMEs, the difficult of SMEs financing and how to figure out this difficulty both in the UK and China. In addition, this essay will discuss the differences and similarities of the financing of SMEs in the two countries in detail.
The essay will be divided into four sections. The first examine: the current situation of SMEs. The second examine: the types of SMEs financing. The third examine: The plight of SMEs financing. The fourth examine: The SMEs financing how to get improve.
2.1 The overview of the SMEs
It is no doubt that SMEs is very significant in the county’s economy. It can impact on the rate of employment and the number of innovation. However, it is clear that the financing of SMEs is not easy. Thanks to the SMEs exist a lot of disadvantages during the period of production and the financial environment is poor. Nevertheless, the sources of financing are estimable to SMEs. Especially the bank loan，the SMEs must acquire capital from bank can make it to better.
A definition of an SME
The definition of SME is related to the number employees, annual turnover, balance sheet and independence. There are a verity of defines in different counties. For example, in the UK, the number of employees less than 49 people is geared to small…