a)Asymmetry of information:
It provides the commercial banks with full information on the companies’ potential that cannot be described in the financial information.
The valuation system of KOTEC is composed of 45 indices that define the key success factors of client companies. Also, most of the indices are represented by quantitative valuation. There is slim chance for the evaluator to make his/her decision at own discretion.
c)Lack of collateral :
The system promotes credit-based lending, not collateral-based.
d)Lack of financial capacity :
Even high risk but technology based firms can access financing sources without any collateral or credit guarantee
e)Lack of SME access to skills / knowledge / markets :
SMEs that achieve a high KOTEC’s technology score can promote their technologies with a certificate, facilitating market credibility for their technologies. Moreover, the certificate could be used in the technology licensing/transfer process. This rating system motivates other SMEs to develop their technology to get a high technology score from KOTEC in order to facilitate their funding sources.
f)Unavailability of financial products tailored to SME needs:
The certificate is also applicable to the key information of venture capital firms when screening companies for investment potential. Also, it can be used in the selection procedure that finds the beneficiaries of government project funds.
g)Lack of institutional capacity of financial intermediaries:
Financial intermediaries can streamline the investigating procedure when KOTEC is involved in the valuation procedure. With this edge, they can more focus on other more profitable business.
h)High transaction costs for financial intermediaries to serve SMEs:
KOTEC can reduce the cost incurred in the valuation procedure.
i)Lack of competition / incentives for financial intermediaries to serve SMEs:
Currently, more than 10 commercial banks are involved in the KOTEC’s technology certificate system.
j)Underdeveloped local capital markets (term local currency funding, exit options for SME equity):
The certificate can be used as an indicator when formulating various investment programs and exit strategies for SMEs.
k)General barriers to SME development related to investment climate:
For those start-ups in which financial intermediaries are unwilling to invest, KOTEC can improve access to funding sources.
l)Lack of financing to women entrepreneurs:
The KTRS rating system \adds points to companies which are run by women. While this system represents the public spirit of KOTEC, it is also based on economic validation. The risk of default is negatively correlated with the presence of women entrepreneurs in management, according regression analysis.
m)Specific barriers to fragile and weak states:
It can be applied to any underdeveloped or developing countries which striving to transform their industry from low-wage based to technology based.