As the COVID-19 situation eases, local economic activities are showing signs of picking up. Nevertheless, economic recovery will take time and many small and medium-sized enterprises (SMEs) are still in dire straits. It is therefore crucial to continue to support SMEs, enabling them to carry on their business and, by so doing, protect the jobs of employees. Among the various support initiatives, the SME Financing Guarantee Scheme operated by the HKMC Insurance Limited (HKMCI) on behalf of the Government is playing an indispensable role.
The SME Financing Guarantee Scheme has been in place for nearly 10 years. In response to the COVID-19 pandemic, a number of enhancements have been introduced recently, including raising the maximum loan amount, extending the guarantee period, lowering the guarantee fee, and offering a principal moratorium under the 80% Guarantee Product. In mid-December last year, the new 90% Guarantee Product was rolled out to provide more support to small and micro enterprises and those with relatively less operating experience, to help alleviate their cash-flow pressures.
In the first five months of 2020, more than 2,100 applications were approved under the 80% and 90% Guarantee Products, involving more than HK$6.1 billion. The number of approved applications nearly doubled when compared with the same period last year, a clear indication that banks are making good use of these products to support their SME customers. At the end of May, the maximum loan amount under the 80% Guarantee Product was raised from HK$15 million to HK$18 million, while that for the 90% Guarantee Product was increased from HK$6 million to HK$8 million. An unprecedented move was also taken to extend the eligibility for both products to listed companies in Hong Kong for a period of one year, in order to help more enterprises tide over the current challenges. In addition, both the existing guaranteed loans and new applications are eligible for an interest subsidy for a maximum period of 12 months, with the first payment to be made by the end of June.
In his Budget speech earlier this year, the Financial Secretary announced the introduction of the Special 100% Loan Guarantee to enhance the cash-flow support to enterprises affected by the COVID-19 outbreak. The special loans are fully guaranteed by the Government, with an interest rate of the Prime Rate minus 2.5% per annum (i.e. the current interest rate at 2.75%), and all guarantee fees are waived. As the Special 100% Loan Guarantee is an extraordinary measure at an extraordinary time, we are mindful that the criteria should be as simple and clear as possible. Enterprises experiencing a decline of 30% or more in sales turnover are eligible to apply for a loan amount up to the sum of employees’ wages and rents for a period of six months, subject to a cap of HK$4 million. This special guarantee differs from the 80% and 90% Guarantee Products, in that the funding is provided by the Hong Kong Mortgage Corporation Limited (HKMC) and not by the banks. With the solid backing from the HKMC, banks can focus on whether the applicant meets the criteria of the scheme when vetting an application, without having to worry about commercial justifications or claims processing. This has significantly expedited the whole approval process.
Since the introduction of the Special 100% Loan Guarantee on 20 April, the HKMCI has received about 8,600 applications from banks amounting to some HK$16 billion. If all the required documents are available, the HKMCI can normally complete the processing of an application within three working days. Indeed, currently around 60% of applications are approved on the same day. And, I’m pleased to note that some enterprises have told their industry associations and Legislative Council members how fast the approval process has been and how it has helped them tide over their immediate problems.
It is not an easy task for the HKMCI and banks to deal with such a large number of loan applications within a short period of time. To achieve this, all relevant parties have to work together with the common objective of processing and approving the applications speedily, and suitable flexibility is exercised to deal with special cases. For example, it was noticed that some applicants could not produce proof of MPF contributions, making it hard to assess their expenses on employees’ wages and hence their loan amounts. As a result, the HKMCI quickly decided to accept the relevant bank records of those salary payments in lieu of the MPF records. If the businesses have been paying wages in cash with no bank records, receipts signed by the employees acknowledging the payments are also acceptable. There is also a requirement for firms to present bank statements or management accounts as evidence of reduced earnings. However, in some cases injection of funds was made by shareholders to support their businesses for survival and that may give the impression that sales have not dropped as much. Hence, careful scrutiny over the relevant records is required to ensure that loans are provided to firms with genuine needs.
Very often SMEs are the testimonies of the lifelong pursuits of hard working entrepreneurs, and these uplifting stories are integral parts of Hong Kong’s history and economic development over the years. Among the applicants for the special loans is a wonton noodle shop that has firmly established itself in Hong Kong for more than half a century. The outstanding traditional noodle-making skills of its experienced chefs are highly valued by the shop’s faithful patrons over the years. Unfortunately, even the best caterers are not spared in the economic downturn caused by the pandemic. With the special loan, the noodle shop can continue to operate during these challenging times, preserving a unique craft and a much-loved neighbourhood eatery. Another beneficiary is a major supplier of lunch boxes to local schools, whose income has virtually stopped upon the suspension of classes. The employer was determined not to lay off his employees even though there were huge pressures on costs, and the special loan has greatly eased his cash-flow problems. As schools reopen, the business can now continue to operate and serve nutritious meals to teachers and students.
SMEs form an important pillar and driving force supporting the economic development of Hong Kong. We will continue to closely monitor market developments and provide timely support to help SMEs overcome the difficulties ahead.
Hong Kong Monetary Authority
22 June 2020