WENZHOU, Zhejiang - A financial taskforce has been sent to probe private lending in this eastern coastal city, as companies and their bosses continue to face ruin, government sources announced on Thursday.

Teams will look into why the majority of small and medium-sized enterprises (SMEs) are sailing into financial dire straits, with some company bosses going missing or even committing suicide due to the pressures of repaying loans to underground banks.

"We've got 48 underwriting firms to provide bank loan services to SMEs with lowered interests and commission fees, and a series of activities will be held between banks and enterprises to ease their difficulties," said Yu Zhongping, director of Wenzhou Economic and Information Commission.

He said more measures will also be carried out to monitor and control the risks of private lending.

In addition, the city government has organized 25 teams to work with 25 banking organizations to examine the lending system for SMEs to prevent a collapse of the money chain.

"We aim to regulate the private financial market by organizing and expanding more authorized financial companies offering loans in the near future," said Zhang Zhenyu, Wenzhou's finance director.

According to official statistics, the amount of private capital in Wenzhou exceeds 600 billion yuan ($93.7 billion), with private loans accounting for 110 billion yuan.

Since the beginning of this year, the estimated annual interest rate has increased, reaching a peak of 25 percent in September.

"As the majority of loans from (authorized) bank went to State-owned enterprises, the tightened policies meant SMEs were forced to borrow money through individual deals or from underground banks," said Li Zhengtu, an economist with the Shanghai Academy of Social Sciences.

He said that with more companies borrowing from underground banks, the interest rate increase was inevitable, as the amount of money available for borrowers was limited compared with the huge demand.

As of Tuesday, 30 enterprises had shut down this year due to their inability to pay for labor or materials, according to Wenzhou government data.

"The sudden closures come down to the fact the companies' expansions were too rapid: Too much money was put into production without control," said Zhang Hua, an assistant finance professor at the China-Europe International Business School.

He explained that, as the global economy slowed down, profits declined, meaning companies were unable to pay back high-interest loans on time, leading to difficulties in cash flow.

Of the 855 companies surveyed by the Wenzhou Economic and Information Commission, more than 76 percent said they are almost out of money and are struggling to continue production.

Authorities have now set up a team to help enterprises balance production and cash flow, and then restructure their companies.

"The government should set up a financial market with different layers to meet all demands from different enterprises that have financial problems, as well as helping them to monitor and control the risks of private lending," said Zhang.

The number of authorized underwriting companies and financial agencies associated with local banks should also be increased to provide loans to SMEs with reasonable interest, he added.