The finance issues of SME’s

The economic climate post-crisis, created severe financing difficulties for SMEs. Tighter regulation like Basel III forced banks to hold more capital and to engage in less risky investments. These restrictions significantly decreased the financing abilities for SMEs, creating an imperfection in the market. This research focusses on the SME bond as a potential source of alternative financing and if SME bonds can overcome post-crisis SME financing issues in the Netherlands. The results from this research show that SMEs using an SPV to issue SME bonds have a lower cost of capital and that the use of less standardized accounting methods also results in a significantly lower cost of capital, caused by lower information asymmetry. Even though the SME bond issued by an SPV has a lower cost of capital, the markets are still directing less capital to smaller companies indicating that there is still an inefficiency in the SME financing market.