8 - The impact of family business financing decision

Family business will be discussed in this weekly blogger. As covered in blogger 5, there was a banking crisis occurred in 2008. This will cause a huge effect to whom are doing family businesses. Firstly, economy recession appears while the banking crisis existed, it causes small-medium businesses face a difficult challenge to survive in their industry. Secondly, as banking crisis occurred, credit crunch will be existed, this means businesses are harder to gain bank loans, especially to small-medium businesses. Above factors indicate a problem that family businesses may face, raising capital.
 
Although most family businesses aim to grow faster, the recession left a impair mark, which causing some family businesses are either unable or harder to source finance and capital. There are two different situations that family businesses can choose. For example, if a family business is public companies, this means the business is able to raise capital through issuing equity to shareholder, which listing on stock market. Although it sounds like easier to get fund from public, the family business need to be transparency, which means that they requires producing documentation to public. In contrast, if a family business is private company they only can raise their capital through bank loans. However, due to the influence of recession, small-medium family businesses are remained restricted for availability of loans from bank.
 
 
Normally, family businesses do not produce any documentation as they are closed environments and protective of family secrets. In contrast, for those larger family businesses, although they are able to gain fund by issuing equity, they may need to aware of agency problems. Investor may not trust the family businesses with their wealth as the founding members or managers of family businesses may only server their own needs, which effect the growth of the business. However, in the situation of small-medium family businesses, they found borrowing loan harder as many banks feel business confidence was declining, which means the aim of growing and expanding their family businesses are not achievable .
 
 
The effect of recession has a huge impact to family businesses, and what will be the best method for those family businesses to run in contemporary business environment? As most of banks are restricted to lend funds to small-medium business, and the result of survey shows over 40% of applicants have been refused in each quarter this year, which means family businesses are not able to grow and invest, and it is frustrating that bank finance is still difficult to get.