In recent years, the Wuxi New District (WND) in Wuxi, East China's Jiangsu province has taken a series of measures to improve the financial environment for small and medium-sized tech enterprises in order to fuel their growth.
The WND is helping small and medium-sized enterprises (SMEs) to get their much needed funds through jointly exploring innovative financing ways with commercial banks.
On the other hand, the district has also stepped up supervision on banks, barring them from upping enterprises' financing costs in any ways.
Loans backed by financing risk compensation fund
For example, the WND is actively pushing ahead with a loaning program backed by a financing risk compensation fund in order to facilitate the transformation of scientific and technological findings.
In 2010, the district set up a 10-million-yuan ($1.61-million) risk compensation fund and kicked off a close cooperation with the S&T branch of Agricultural Bank of China in Wuxi.
In 2013, the WND was selected into a provincial pilot program for technological loans backed by the risk compensation fund, with support from the Agricultural Bank's S&T branch. In the following year, Jiangsu Bank's S&T branch also joined the program. Such loans have since been playing a major role in helping startup and asset-light businesses, as well as small and medium-sized tech companies solve their financing difficulties.
Under the program, the Agricultural Bank's S&T branch has extended loans totaling 895 million yuan to 112 small and medium-sized tech enterprises so far.
Since 2014, a total of 139 tech companies in the WND have applied for loans worth 480.5 million yuan under the program. In the same year, another nine enterprises obtained loans worth 23.8 million yuan under a provincial technological loans program.
In a bid to better meet enterprises' financing needs, banks are developing new financial products to offer enterprises diversified financing channels and help them cut financing costs.
Since its launch in the WND in 2010, the Agricultural Bank's S&T branch, with a special focus on small and medium-sized tech enterprises, has rolled out a series of innovative financial products, including loans on credit, loans with intellectual property assets pledged as collateral and equity pledged lending, along with other new products developed on the basis of traditional services.
The bank branch has granted 309 SMEs in the WND loans totaling 3.76 billion yuan while making major breakthroughs in intellectual property assets pledged lending, equity pledged lending and purchase order financing. By the end of 2014, it had extended a total of more than 400 million yuan in loans with intangible assets as collateral as well as loans on credit.
Interest subsidy policy
Besides, an interest subsidy policy was enacted in 2011 as part of Wuxi’s major supportive measures for tech enterprises. The policy covers the following three lending programs:
The first is called the "530 Enterprise Loans", which is designed to encourage leading talents to start enterprises in Wuxi. The loans should be used for industrialization of S&T research achievements. The subsidy, which is offered for loans at a one-year maturity or longer, should be calculated based on the interests the enterprise has actually paid to the bank and not exceed 50 percent the corresponding lending rates offered by the bank. In a period of three consecutive years, the highest annual amount of subsidy should not exceed 1 million yuan and the total amount for the whole period should not exceed 2 million yuan.
So far, nearly 60 enterprises in the WND have been granted interest subsidies totaling nearly 13 million yuan. In 2014, 17 enterprises recommended by the WND got approval and were given subsidies totaling 4.65 million yuan.
The second is designed to support the industrialization of research findings, usually effective for a period of two years, or three years at the most. It requires enterprises to make new investment of more than 5 million yuan as well as increased sales revenue of over 30 million yuan for the same period. The subsidy, which is offered for loans at a one-year maturity or longer, should be calculated based on the interests the enterprise has actually paid to the bank and not exceed 50 percent the corresponding lending rates offered by the bank. The amount of subsidy should not exceed 1 million yuan a year or 2 million yuan in total for the whole period.
In the last three years, 29 projects of 20-plus enterprises in the WND have won approval to join the program, with subsidies totaling 40.5 million yuan granted.
The third is mainly aimed to support SMEs in their efforts to turn patented technologies into mass production. It targets bank loans with patent rights as collateral. Enterprises under the "530" Program will be offered a full-interest subsidy and other small and medium-sized technology enterprises will be given a subsidy worth 50 percent of their bank loan interests, with the maximum per enterprise set at 300,000 yuan.
Owing to strict requirements, only less than 50,000 yuan of such subsidies has been granted to enterprises in the WND so far. The subsidies granted to the enterprises under the "530" program will not be included here.
In addition, interest subsidies are also offered at the district level. Tech enterprises in the WND, which own independent intellectual property, can apply for such subsidies for bank loans to be used as working capital for R&D and production.
According to rules of the WND, the subsidy will be 50 percent of the interests the enterprise has actually paid to the bank. The enterprise will be subsidized for two consecutive years, with an annual maximum of no more than 500,000 yuan. So far, eight companies in the district have obtained 2.63 million yuan in subsidies at the district level.
The WND is stepping up construction of an enterprise database, which serves as an exchange platform between enterprises and institutions as well as a bridge between technology and finance. Currently, the database provides information on more than 200 enterprises, including 83 that are working toward going public.
The database will keep policy makers informed of SMEs' latest developments in a timely manner so that more oriented policies can be made to support the SMEs in financing, training and market expansion.