Government Funding for SMEs
SMEs (Small and Medium Enterprises) are an integral part of the Hong Kong, and global, economy. As of September 2019, SMEs accounted for 98% of Hong Kong’s total business units, and provided job opportunities to approximately 1.3 million people (around 45% of total employment in the city). According to the Hong Kong Government, an enterprise is considered an SME if it is a non-manufacturing enterprise with fewer than 50 employees, or if it is a manufacturing enterprise with fewer than 100 employees. Working with an SME can be highly rewarding for both the individual and the aggregate economy.
However, SMEs often face unique challenges in the course of business, challenges that are not typically experienced by larger companies. Commonly cited are difficulties with financing, particularly in Hong Kong where overhead costs are often prohibitive. Furthermore, many SMEs in Hong Kong rely on self-financing to raise capital, and are typically less likely to be able to obtain bank loans. So, it is not unusual for these enterprises to struggle with both covering their costs and expanding their business.
Given that SMEs are an essential component of Hong Kong’s economy, the HK government prudently facilitates access to extra financial support for SMEs. The government currently operates multiple schemes to aid SMEs with start-up costs, self-improvement costs, advertising costs and of course, general financing. More specific details about four relevant government schemes, including what is available through each scheme, which SME-specific issue the scheme aims to address, and who is eligible to enrol in the scheme, are given below.
Loans for Start Up Costs, Self-Employment and Self- Enhancement
The Hong Kong Mortgage Corporation Limited (HKMC) offers the ‘Microfinance Scheme’, which provides three different loan arrangements for the purpose of addressing several (three) issues often experienced by anyone who is self-employed, or has a small business. In addition to facilitating loan agreements, the Scheme offers additional support for borrowers, including entrepreneurial training and long-term mentorship. Overall, the Scheme aims to aid in financing, and help small businesses invest in human capital, which should in turn enhance productivity.
SMEs by their nature do not always have resources available to invest in improving their human capital, i.e. spending on education and self enhancement. However, it is common knowledge that investment in human capital can effectively enhance productivity, both in the workplace and in the wider economy. Thus, this is a well-thought out scheme with attractive potential long-term benefits for SMEs and the self-employed who choose to participate.
Two of the loans available, the ‘Micro Business Start-up Loan’ and the ‘Self-employment loan’ both offer up to HK $300,000 (loan arrangement) for those who wish to establish a new business or are self-employed. The ‘Micro Business Start-up loan’ can even be borrowed by an already existing business that has been established for less than five years.
The other loan the Scheme offers is the ‘Self-enhancement loan’, under which the loan must be used to fund a training course that is related to better understanding how to start a business, or is specific to career development. Courses can include (but are not limited to) those accredited by the Hong Kong Council for Accreditation of Academic and Vocational Qualification. Other relevant courses may receive approval from the HKMC. The Scheme offers up to 100% of the cost of the course and/or examination fee, or HK $100,000, whichever is less.
Any individual aged 18 or above who holds a Hong Kong Identity Card may apply for either one of the three loan arrangements. Further information on the Microfinance scheme may be found at the following link: ………….
Loans for SMEs that Need Financing
The Government currently facilitates two separate schemes that intend to help SMEs secure financing from lending institutions. Following is some further information about each specific scheme.
The SME Financing Guarantee Scheme
The SME Financing Guarantee Scheme currently is run by the Hong Kong Mortgage Corporation Insurance Limited (HKMCI). This scheme helps local SMEs and non-listed enterprises secure loans to be used for the acquisition of assets or equipment relevant to their business / enterprise, or to provide general working capital for the enterprise’s business operations. Loans borrowed through the scheme can also be used to refinance any facilities with a guarantee under the scheme.
Through the Scheme, the HKMCI can provide an SME guarantee coverage of either 50%, 60% or 70% of an approved facility. The scheme guarantees both term loans and revolving credit facilities. An enterprise can borrow either type of loan, or both at the same time, and there is no limit on the proportion of each loan type borrowed.
The Scheme offers a special concessionary arrangement, which was implemented to help SMEs facing liquidity and other financing issues. Under these measures enterprises can receive an 80% guarantee, a discounted annual guarantee fee rate, and can be relieved of the Scheme’s typical minimum annual guarantee rate of 0.5%.
Enterprises must be registered in Hong Kong and carry out at least some business operations in Hong Kong. Additional information regarding this scheme can be found at : http://www.hkmc.com.hk/eng/our_business/sme_financing_guarantee_scheme.html
The SME Loan Guarantee Scheme (SGS)
The SME Loan Guarantee Scheme (SGS) is run by the HK government’s Trade and Industry Department (TID). This scheme offers loan guarantees for SMEs that have already borrowed, or are looking to borrow in order to acquire business installations and equipment, or meet working capital needs for general business functions. The Scheme offers enterprises a guarantee of 50% of the loan amount, and has a multitude of participating institutions; all authorised institutions registered under the Hong Kong Banking Ordinance are eligible to join.
Business and equipment loans must either be non-revolving loans or a hire purchase agreements. Working capital loans must be a non-revolving loan. Both loans must be repaid in instalments. Enterprises that fall under the HK Government’s definition of an SME, and that carry out ‘substantive’ business operations in Hong Kong are eligible for this scheme.
Further information about the scheme can be found at: https://www.smefund.tid.gov.hk/english/sgs/sgs_objective.html
Funding for SMEs that Export Goods / International Business
SME Export Marketing Fund (EMF)
Hong Kong is a hub for international trade. There are no import or export customs tariffs, and licensing requirements for both imports and exports are minimal. The lack of barriers to trade makes Hong Kong a highly attractive trading port for many international actors.
SMEs undoubtedly can benefit from exporting their goods to alternative markets, thereby expanding the number of consumers. The HK government clearly recognises that SMEs may not have the same resources as larger companies to help promote and facilitate the trade of their products. So, the Government’s Trade and Industry Department runs the ‘SME Export Marketing Fund (EMF), which provides grants to help SMEs finance promotional activities pertaining to exporting their goods. Promotional activities may include: visiting trade fairs and exhibitions, advertising, or creating an online website for sales.
The Fund offers SMEs a grant of either 50% of the expense incurred in partaking in promotional activities, or HK $100,000 (whichever is less). SMEs may apply for multiple grants, and can receive up to HK $400,000 from the fund in total.
More information about the Fund can be found at: https://www.smefund.tid.gov.hk/english/emf/emf_objective.html
The Dedicated Fund on Branding, Upgrading and Domestic Sales
The Hong Kong Productivity Council (HKPC) facilitates the ‘Dedicated Fund on Branding, Upgrading and Domestic Sales’ (BUD Fund), which focuses on helping local enterprises expand their business overseas. The BUD Fund was initially established to encourage enterprises to invest in doing business in Mainland China. Now, The BUD Fund offers two funding programmes; the ‘Mainland Programme’ and the ‘FTA (Free Trade Agreement) programme’.
The FTA programme offers funding to enterprises that are looking to expand their operations, or trial projects), in overseas economies that Hong Kong has a current Free Trade Agreement with. These countries include: Australia, the ASEAN Bloc, Chile, the EFTA (Switzerland, Norway, Lichtenstein, Iceland), Georgia, Macau and New Zealand.
The BUD Fund offers approved enterprises up to HK $4 million in funding for up to 24 projects, for both the Mainland Programme or the FTA programme. A maximum of HK $2 million may be used for each programme. So, for example, local enterprises that only do business in Mainland China are only eligible for HK $2 million. Projects must not run for longer than 2 years.
Further information about the BUD Fund may be found at the following link: https://www.bud.hkpc.org/en