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Organisations and the financial system
Organisations and the financial system

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2.5 A comparative view of different sources of finance

So far you have seen the reasons why different types of financial resources might be suitable to different business organisations, but it is also useful to place them into the context of their prevalence in the real world. By taking a comparative view and examining the relative weight of each source of finance in different countries, you can develop a picture of how important different sources of finance are across the economies of today.

Activity 5  A comparative view of sources of finance

Timing: Allow around 35 minutes for this activity

This activity is divided into two parts. In Part 1 you are asked to match the sources of finance to the corresponding definitions. In Part 2 you will interpret and compare data about the use of various sources of finance in different countries.

Part 1

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Part 2

The table and graphs below show the relative importance of the main types of funding for small- to medium-sized enterprises (SMEs) across four countries. Please note that the terms ‘enterprise’ and ‘business’ are commonly used as synonyms. Although these are average values for the period 2013–16, you should be able to appreciate the different structure of financing in each context.

Table 5  Main sources of funding for SMEs, 2013–16 (average in millions of US dollars)
Outstanding business loans, SMEs Venture capital investment Leasing and hire purchases Factoring and invoicing
UK 144,606 2548 22,055 15,697
USA 596,750 66,500 405,828 71,429
China 529,251 50,360 592,364 441,670
Japan 237,286 1319 23,642 71,306
Source: OECD and FCI
Described image
Source: OECD and FCI
Figure 2  The relative average weight of SMEs’ funding in the UK, USA, China and Japan

In the box below, summarise what these figures tell you about types of funding for SMEs across each of the countries represented.

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Discussion

  • Bank loans represent the major source of funds for SMEs in the UK, the USA, and Japan. Chinese SMEs rely relatively more on leasing and hire purchase as sources of finance.
  • VC is a relatively minor source of finance in all four countries (from 1% to 6%).
  • Leasing and hire purchase finance are very important in the USA and China.
  • Factoring and invoice discounting are approximately three times larger in China and Japan than in the UK and USA.
  • The figures are only indicative as they refer to a specific period of time. However, they can provide a useful insight about the differences in the ways in which business financing takes place in different countries.

So far you have explored the main sources of financing for the various types of organisations. The next section focuses on those types of financing specific to Public Limited Companies (Plc).