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.

Many entrepreneurs face the same dilemma: should they sell part of their ownership to raise cash quickly, or keep all the shares and grow gradually?

Today, there are better solutions. Business owners no longer need to dilute equity just to secure working capital or fund expansion. The Hong Kong Government has introduced the SME Financing Guarantee Scheme, designed to help small and medium enterprises acquire equipment and meet general working capital needs.

This article explains what the scheme is, how it works, who is eligible, and what alternatives exist, so founders can make informed decisions without sacrificing ownership.

What is SME Financing Guarantee Scheme?

SME Financing Guarantee Scheme 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. 

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 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

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 2024, business owners can only apply for the SME Financing Scheme. To apply for the 80% or 90% Guarantee, enterprises must be a non-listed entities 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)

What to prepare before you approach the bank

Category	Documents	What the Bank uses it for
Identity	Business Registration Certificate, Certificate of Incorporation, passport copies of all directors and shareholders	KYC, signatory authority, personal guarantee parties
Corporate	Incorporation Form NNC1, Annual Return Form NAR1	Confirm entity is in good standing
Ownership	Register of members, register of directors, Register of Significant Controller, and UBO declaration	Identify who must give the personal guarantee
Financials	Audited / management accounts , bank statements of last 6 months	Revenue trend, cash position, existing debt service
Operations	Sales pipeline, key contracts, customer concentration	Forward-looking repayment capacity
Use of funds	Capex quote / working-capital schedule	Confirms the loan purpose fits HKMCI’s eligible use-of-proceeds rules
Existing security	List of existing charges on assets	Stacking new SFGS security on top, banks check total exposure

Five questions to ask your banker before you sign

• Interest rate ceiling What is the maximum interest rate applicable to my facility at the signing date?Is it fixed, capped, or floating without a cap?
• Facility type Is my facility structured as a revolving facility, a term loan, or a combination of both? How does each align with HKMCI eligible‑use rules?
• Security requirements What security will the bank require, a charge over company assets, a personal guarantee, a property mortgage, or a combination?
• Principal moratorium If I want to apply for the 2024 Principal Moratorium, has the bank confirmed this in writing, and what is the process and deadline?
• All‑in cost stack What is the total cost, including interest, guarantee fee, legal, valuation, stamp duty, and arrangement fee, quoted as a single APR?

The Hidden Cost Stack: What You Actually Pay Beyond Interest

The interest rate in your term sheet typically accounts for only about 60% of your total borrowing cost. The remaining expense comes from the security package—including legal fees, property valuations, stamp duty, and bank arrangement fees.

Below is the cost breakdown most frequently observed by the GetStarted.hk editorial team for a typical HK$5,000,000 SFGS facility over a 5-year term, expressed as a one-time percentage of the loan amount:

Fee Item	Charging Entity	Indicative Range (One-off % of Loan)	Purpose & Description	Negotiable?
Bank Interest (Annualized)	Lender	HIBOR + 3.5% to 5.5%	Covers bank funding costs and risk margin	Yes — Compare quotes across multiple lenders
Annual Guarantee Fee	HKMCI (via Lender)	0.36% to 0.45% per year	Government guarantee premium	No — Set by HKMCI guidelines
Valuation Fee	Bank-approved Surveyor	0.10% to 0.30%	Required if secured against property or major machinery	Sometimes — Depends on asset complexity
Lender Legal Fee	Bank’s Solicitor	0.20% to 0.50%	Facility agreement, security drafting, and registration	Rarely — Capped by bank panel rates
Borrower Legal Fee	Your Solicitor	0.15% to 0.40%	Independent review, execution, and stamp duty filings	Yes — Select your own commercial lawyer
Security Stamp Duty	IRD (Cap 117)	0.10% to 0.20%	Statutory Hong Kong stamp duty on security instruments	No — Statutory fee
Arrangement / Setup Fee	Lender	0.25% to 1.00%	One-off facility administration and processing fee	Yes — Often fully waived upon negotiation
Companies Registry Filing	Companies Registry	HK$340 per charge	Registration of charges under Companies Ordinance (Cap 622)	No — Statutory fee

Understanding the 2024 Principal Moratorium (2024-PM)

Under the 2024-PM arrangement (effective 18 November 2024 to 17 November 2026), eligible borrowers can apply for a principal moratorium of up to 12 months on qualifying non-revolving facilities. During this period, you only pay interest while principal repayments are deferred (not waived). Applications must be submitted through your lender before the deadline. According to the HKMCI factsheet, borrowers must not have any outstanding defaults of more than 30 days at the time of application.

Run the cash-flow pressure test (a 6-step HowTo)

Below framework is based on successful cases of our clients who applied for the fund. Drawing from their experience, we have summarised the following checklist:

Step 1. Pick your worst‑case revenue scenario Apply a 20% decline for six consecutive months to your last 12 months of actual revenue. Use whichever is lower: your worst quarter or the rolling six‑month average.

Step 2. Project operating cash flow under that scenario Reduce gross profit by the same 20%, since most costs are sticky and margins compress. Exclude one‑off cost savings or unusual revenue wins. Build a simple spreadsheet to show the impact.

Step 3. Add the new SFGS instalments Include the monthly principal and interest you would owe on the loan you are applying for. Even during the 2024 Principal Moratorium, interest continues to accrue while principal is deferred.

Step 4. Check monthly closing cash positions Confirm that every month remains positive. If any month goes negative for longer than 30 days, the facility size is too large. Adjust by reducing the ticket, extending the tenor, or arranging standby capital before signing.

Step 5. Run a second stress test Apply a 30% revenue decline for three months. This is the second‑order stress. Founders who pass Step 4 often fail here.

Step 6. Document the test in your application Attach the cash‑flow table to your loan application. Bankers who see it prepared in advance tend to approve faster than those who need to request it.

When the SME Financing Guarantee Scheme Is the Wrong Choice

Category	Better alternative	Where to start
You need < HK$500K and have no track record	HKMC Microfinance Scheme	HKMCI hotline 2536 0392
Your use is R&D, automation or export promotion	BUD Fund	Hong Kong Productivity Council
Business is genuinely loss-making and the new loan would not change that	Equity, not debt	Speak to a corporate finance adviser
You are within 12 months of break-even and trading history is under 1 year	Wait for 80% eligibility, or apply under 90% with a smaller ticket	HKMCI hotline 2536 0392

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.

Frequently Asked Questions