Government proposes more support for smaller businesses

On November 10, the Hong Kong Special Administrative Region Government put forward two further support measures to help small and medium-sized enterprises (SMEs) amid the current financial crisis.

These measures are in addition to the enhancement measures to the SME Loan Guarantee Scheme (SGS) launched on November 6 and the series of measures taken by the Hong Kong Export Credit Insurance Corporation (ECIC) in October to strengthen support for SMEs.

A government spokesman said one of the measures involves the establishment of a time-limited Special SME Loan Guarantee Scheme to provide US$1.28 billion in liquidity to the commercial lending markets for SMEs.

The government will provide a 70% guarantee to the loans granted by the participating lending institutions (PLIs), and its guarantee commitment will be US$897.43 million.

Under the program, the maximum loan that each SME may obtain from a PLI is US$128,205. Within this maximum limit, up to US$64,102 can be used as revolving credit. The government’s guarantee ceiling to this revolving credit facility also will be 70%. A six-month repayment grace period will be provided to borrowers, during which they may pay back the interest only. Thereafter, the loan should be repaid over a maximum of 24 months.

The spokesman said the proposed program aims to further facilitate SMEs in obtaining immediate cash flow relief from the commercial lending market in the face of the current credit crunch.

The administration will consult the Panel on Commerce and Industry of the Legislative Council (Legco) and seek the approval of the Finance Committee at the earliest opportunity. Subject to the completion of the necessary procedures and legal documentation, the proposed program is expected to come into operation next month.

At the same time, the ECIC will launch a series of enhanced measures to further assist SMEs in sustaining their business and developing new markets during the current financial turmoil, subject to a review in two years.

To offer better protection for exporters and assist them in acquiring funding from banks, the ECIC has agreed to be as accommodating and flexible as possible in handling SMEs’ requests for export credit insurance and to increase the cover within the bounds of prudent credit assessment and risk management.

It also will provide more country coverage for six emerging markets, namely the United Arab Emirates, Kuwait, Chile, Brazil, the Czech Republic and Malaysia. The premium rates for these markets also will be lowered.

For applications for small credit limit of US$64,102 or less, the ECIC will shorten the processing time to two to three days upon receipt of adequate information, and will be as accommodating as possible in processing them.

To strengthen the ECIC’s underwriting capacity, the government will increase the Statutory Maximum Liability (SML) from US$1.92 billion to US$3.84 billion.

Under the ECIC Ordinance, the increase in SML requires a positive resolution by the Legco. It is planned that the resolution will be introduced to the Legco early next year.

LegCo approves enhancements to SME funding plans

On October 28, the Finance Committee of the Hong Kong Legislative Council approved a series of enhancement measures to the SME Funding Schemes, aimed at providing greater support to SMEs in the midst of the global financial turmoil.

Under the SME Loan Guarantee Scheme (SGS), the sub-ceilings for the Business Installations and Equipment Loans and Working Capital Loans (WCL) will be removed, while the overall maximum amount of guarantee for each SME will remain US$769,230.  In addition, the maximum guarantee period for WCL will be extended from two years to five years.  Each SME also will be allowed to recycle the guarantee once after it has fully paid the loan backed by the guarantee, which means each SME will be able to obtain a maximum amount of guarantee of US$1.53 million in its lifetime.  Moreover, the indicative ceiling of guarantee exposure for each PLI will be increased from US$160.25 million to US$192.3 million in order to provide more “quota” for the PLIs in granting loans.

For the SME Export Marketing Fund (EMF), the overall grant ceiling for each SME will be increased from US$12,820 to US$19,230, and the sub-ceiling for each successful application will be increased from US$3,846 to US$6,410.  The scope of reimbursable items also will be extended to include expenditure on advertisements placed on the Web sites of exhibition organizers, as well as advertisements placed on all printed trade publications targeting export markets (i.e., to relax the existing requirement that the printed publications must be published by exhibition organizers).

The much higher guarantee ceiling for the Working Capital Loans should address the SMEs’ concern that in the prevailing business climate their primary financial need is to get loans for working capital rather than for machines and equipment.  It should also enhance support to SMEs in the service sector.

For the SGS, the enhancement measures will take effect once a reasonable number of PLIs have signed the legal documents with the government. The TID will announce separately the implementation date and the PLIs involved.  All applications for the SGS should be submitted through the PLIs.

The government set up the SME Funding Schemes in December 2001/January 2002 to help SMEs rise to new challenges and opportunities.  The SGS aims to help SMEs secure loans from PLIs for acquiring business installations and equipment and meeting working capital needs.  The EMF aims to help SMEs expand their businesses through participating in export promotion activities such as exhibitions and business missions.

At end-September 2008, the SGS had approved more than 20,000 applications, covering a total guarantee amount of US$1.32 billion.  For the EMF, nearly 60,000 applications have been approved, involving a total grant of US$123.97 million.