Investment And Financing For SME With Credit Guarantee

Small and medium enterprises(SMEs) are a fundamental part of the economic fabric, and they play a crucial role in accelerating growth, innovation and prosperity. Unfortunately, SMEs are extremely restricted in accessing capital that they require to grow and expand. SMEs might not be able to access finance from bank at all, or face extremely unfavourable lending condition and therefore, more often than not, they have to abandon potentially very valuable investment opportunities. Almost all countries exploit credit guarantee scheme to solve the problem. However, there exists a serious defect in credit guarantee pricing, since it fully depends on experience. So, researching quantitatively SMEs' capital structure with credit guarantee is vital, which has an important value of theory value and practical significance.This paper considers the designing of the guarantee contract with mixed costs for SME to get bank loans after paying a fixed guarantee fee and a part of equity to an insurer and the capital structure and real investment of the SME who enters into the contract.In this paper, we assume the cash flow generated by the SME follows a double exponential jump diffusion process. According to the equilibrium pricing theory, we explicitly provide the equilibrium price of all the claims and the guarantee cost. We explicitly derive the optimal capital structure of the SME who enter into the contract. By numerical analysis, we show that the optimal bond coupon increases with the expected growth rate and intensity rate, but it decreases with the diffusive volatility. Under the optimal capital structure, the equity stake of the insurer increases with the expected growth rate and intensity rate, but the insurer 's equity stake is a U-shaped function of the diffusive volatility. The guarantee with mixed costs mitigates the firm's risk-shifting incentives. Given guarantee model, the high level of guarantee fee strengths the firm's risk-shifting incentives and mitigates the firm's debt-overhang problem.What's more, this paper also considers the optimal investment and financing based on a mixed guarantee to obtain a bank loan. We explicitly derive the timing of the option to invest and the optimal bond coupon. We find that a growth of the fix annual payment to the insurer will accelerate investment and reduce the amount of debt. A rise in the project's volatility postpones investment. However, it has two opposite impacts on the amount of debt and the fraction of equity distributed to the insurer, which are so a concave function of the volatility.