SME Financing Guarantee Scheme

Key Takeaways: 

• The SME Financing Guarantee Scheme allows SMEs to secure essential working capital and equipment funding without the need to sell equity.
• The SME Financing Guarantee Scheme’s 90% Guarantee specifically supports newer businesses and startups with limited history.
• Mature companies can access larger capital amounts through the SME Financing Guarantee Scheme’s 80% Guarantee.
• To qualify for the SME Financing Guarantee Scheme, enterprises must be non-listed, registered in Hong Kong, and able to provide audited financial reports alongside proof of local operations.

Founded over a decade ago as any other small accounting firm, Get Started HK has evolved into one of Hong Kong’s reliable company formation agents by staying true to its entrepreneurial roots. Having started with limited resources and basic tools like Excel, we understand the struggle startups face when balancing the need for rapid growth against the desire to maintain 100% ownership. We are sure many entrepreneurs have faced the same dilemma: should we sell part of our ownership so we can have cash to develop the company quickly? Or should we keep all the shares and work on our projects gradually?

Luckily, in today’s time, different solutions are available. There is no need to sell a single share of your company. The Hong Kong Government has introduced the SME Financing Guarantee Scheme, in which the Government will support small and medium enterprises to acquire equipment or to meet working capital requirements for general use. This article will go into the details of what an SME Financing Guarantee Scheme is, what it is for, the eligibility for it, and the available alternatives for it.

What is SME funding?

SME funding is the financial support the government provides for eligible Small to medium enterprises in Hong Kong. The scheme helps smaller businesses to have a jump start, grow, or help face financial difficulties. This is through the means of loans, grants, programs, and subsidies provided by the government. 

The SME funding in Hong Kong offers better benefits as compared to normal business loans in the form of lower rates, fewer required collateral, or partial loan guarantees by the government. The SME funding sources can come in different forms as government schemes, bank funding, and private investors, such as venture capitalists, or special funding departments. Two of the SME funding schemes are the SME Loan Guarantee Scheme and the SME Financing Guarantee Scheme. 

SME Financing Guarantee Scheme (SFGS)

The SME Financing Guarantee Scheme (SFGS) is a loan managed by the HKMC Insurance Limited (HKMCI). It assists with different costs of operating a business, such as employee wages or rents, in order to minimize the risks of employee layoffs or shutting down the business. The SME Financing Guarantee Scheme (SFGS) is applicable to all SMEs, including those most affected by the pandemic, such as retail outlets, travel companies, restaurants, and entertainment places. The SME Financing Guarantee is separated into 3 “tiers”, namely SFGS 80, 90, and 100. This means:

• 80% Guarantee: The Government pays the bank 80% of the remaining balance. The bank only loses 20%.
• 90% Guarantee: The Government pays the bank 90%. The bank only risks 10%.
• 100% Guarantee: The Government pays the bank100%. The bank takes zero risk, which is why these loans usually have the lowest interest rates.

Do note that as a borrower, this does not mean you will be risk-free. The government will take over the role of the bank and seize our personal assets to cover the losses paid on your behalf. The 100% guarantee was a special measure for the pandemic, which means the original application period has ended. The 80% and 90% guarantee has been extended by the government. 

Product	Used for:	Application Deadline
80% Guarantee	Established businesses (1+ year) need larger capital.	March 31 2028
90% Guarantee	Startups or smaller businesses with less history.	March 31 2026
100% Guarantee	Emergency relief (requires proof of revenue drop). For Pandemic times	Closed

SME Loan Guarantee Scheme (SGS)

The SME loan Guarantee Scheme (SGS) is a scheme managed by the Trade and Industry Department (TID). The Hong Kong government can provide up to 50% guarantee of the loan amount. The ceiling is capped at $6 million (HKD), and there is a maximum 5-year guarantee period. The offer is quite generous, and it should be sufficient to boost your business development in a short time. A successful applicant can even participate in the scheme more than one time.

Business installations or equipment cover the following:

• communication system
• computer software and hardware
• Office Machinery and Equipment
• Furnitures and fixtures

There is no restriction on whether installations need to be inside Hong Kong. Moreover, the loan can be spent on second-hand installations and equipment. The scheme is so flexible, and this is to make sure small enterprises can sharpen their competitiveness and thrive in the market. Do note that the application period for this scheme has already closed on 31 March 2021.

Why Does it Exist? 

The main reason for the existence of government funded SME schemes is to level the playing field for small to medium enterprises in Hong Kong struggling to compete with the larger corporations. The government offers more desirable loan terms and reduces barriers to loan eligibility. This ensures that the government is able to empower the business to innovate and remain competitive both locally and globally. 

The SME financial guarantee scheme supports both long-term investment and short-term operation relief of small to medium enterprises. While general financing allows companies to invest in research, develop new products, and expand into fresh markets, working capital financing specifically targets day-to-day liquidity. By covering the essential expenses like rent, wages, inventory, and different day-to-day expenses, these funds ensure that the business gets a stable cash flow and operational continuity, providing the flexibility that is necessary for sustainable business growth. 

How to be Eligible?

As the 100% guarantee and the SME loan guarantee schemes are closed for application in 31 March 2021 and 2024 respectively, business owners can only apply for the SME Financing Scheme. To apply for the 80% or 90% Guarantee, enterprises must be a non-listed company registered in Hong Kong. Here are the requirements for a company to be eligible for the financing scheme:

• Have all the company registration documents
• Have substantial business operations and local presence in Hong Kong
• Have the latest financial reports
• Have the latest bank statements and loan information from major banks (if any)

If you have already registered a business in Hong Kong and want to prepare the required documents for the SME Financing guarantee scheme, you can contact us at info@gestarted.hk.