Is Equity-Financing Always Optimal for Innovative SMEs? --How ...

第 25 期I. IntroductionFacing the recent global financial crisis in 2009 stemmed from U.S. sub-primemortgages, many governments in the world increased“credit guarantee”to SMEs tocushion the shock.For about a decade prior to the crisis, credit guarantee institutions (CGIs) in Korea wereat the center of a controversy that Credit Guarantee Scheme (CGS) for SME support is anarchaic scheme normally employed by emerging countries and should be reducedsignificantly.Some insisted so based on the fact that commercial banks do not take the risk they aresupposed to. They argued that high guarantee coverage ratio for SME lending - ranging from85% bottom-line up to 100% occasionally - led commercial banks in Korea, which areaccustomed only to collateral-based lending, to chronically rely on CGIs and neglect effortsfor skill development necessary to make reasonable decisions on their own and to properlydeal with associated risks.Also, IMF consistently advised the Korean government to reduce credit guarantee by1% of GDP every year. The reasoning was simple: extensive financial support to SMEsaggravates fiscal account and will eventually lead to degradation of creditworthiness ofsovereign Korea.Others negated CGS with an argument that debt is not an adequate tool to financevarious innovation practices of SMEs including R&D projects and early-stage businessdevelopment. The most often mentioned alternative by the proponents of this view wasEquity Funding primarily through Venture Capitals (VCs).The argument has often been extended to criticisms mounted on CGIs. Many argued140