Projects

Small Business Financing Research

The majority of small businesses leave the market within the first seven years of their existence. As a result, jobs are lost and a significant amount of entrepreneurial potential is wasted. The principal cause of this business failure used to be seen as the inadequate individual skills of the entrepreneurs and their occasional irrationality. Increasingly, however, the forms of finance available to small businesses are taking centre stage in the debate. Small businesses are frequently under-capitalised and are also largely dependent on standard bank loans. In order to analyse the situation and to develop tools and methods to help small businesses to better manage their finances, the German Federal Ministry of Education and Research funded a

Insolvency Prevention and Crisis Intervention for SMEs Project
(project # 01HG0052, 2000-2003)

This project is located in the “bank – small business in crisis” interface and is developing instruments which will enable small businesses to anticipate crises and manage them constructively.

FinanzConsult, an Internet-based financial advice programme, developed out of a number of case studies of small businesses in financial crisis, offers information and tools which – depending on the circumstances of the relevant user – either offers advice itself or in conjunction with telephone or face-to-face advice, so that small businesses are not unprepared or paralysed in the face of crisis.

A second building block is “FinanzCheck“, a finance software package which analyses the multiplicity of financial products using a cash flow approach based on their likely impact on the business as a whole. At the same time, these loans and investments are tested against their cost structure and their advantages compared with other products. The financial software package is also intended to assist specialist small business advice centres to get businesses in the right financial track, so that they do not simply theorise about the best available alternatives, but are in a position to make practical suggestions and carry out the requisite calculations. The programme will be capable of calculating all financial products relevant to small businesses, from loan finance instruments to retirement pensions.

A further building block, “FinanzCall“, is a telephone hotline supported by a database, which operates in conjunction with Internet-based products and the existing local advice infrastructure, providing a basic-level advice and assistance product. This means that the hotline is not an isolated tool, and it is tied into a distribution system which includes everything from self-help materials to personalised advice on the spot to generate appropriate solutions. The hotline also incorporates initial crisis advice as to action required immediately.

In the “FinanzControl“ segment, the current debate about own-capital investment using banking-sector loans, together with minimum requirements imposed on lenders, is addressed in order to map out the development of an adequate reporting procedure for small businesses which will both provide the small business with an overview of its financial position and make communication about financial matters with finance providers more effective. The software programme concept is designed in a way that both bank and business can use it to facilitate objective communication and conduct a more reliable evaluation of the business at any time. Used regularly, the information is intended to provide small businesses with useful feedback, as well as giving the bank all the information it needs to enable it to provide further finance with confidence. Finally, a situation is established between the two parties which is free from emotion and misunderstandings and can be dealt with using more reliable – and indeed more personalised - information.

Numerous e-mail queries have been sent by small businesses to the Institute using the Expert Forum of the Internet adviser FinanzConsult, clearly demonstrating the need for advice. The Finanzcheck software package is used by the Institute for the calculation service and is also available for sale. The telephone hotline concept FinanzCall has been successfully tested by the crisis hotline Krisenhotline Köln in Cologne and will continue to be used there. The FinanzControl concept is ready and available for a small business-monitoring software product. We are currently looking for software partners and sponsors.

Please contact the iff