80% GUARANTEE PRODUCT UNDER THE SFGS

The SME Financing Guarantee Scheme (SFGS) was designed to empower SMEs by providing financial support through guarantees from HKMC Insurance Limited (HKMCI). The SFGS offers the stability and confidence your business needs to thrive. You can use the loan for the following:

• Acquiring assets such as machinery and equipment
• As general working capital
• To refinance facilities that were guaranteed under the SME Financing Guarantee Scheme

The key feature of the 80% Guarantee Product is that the Government (via HKMCI) undertakes 80% of the bad debt risk for banks. This enables local enterprises that lack property collateral and have been operating for at least 2 years to apply for a commercial loan of up to HK$18 million with a repayment period of up to 10 years. This loan is exempt from hard asset collateral (though major shareholders must provide personal guarantees) and is primarily used for day-to-day operations or purchasing equipment. Borrowers only need to pay an additional annual guarantee fee of approximately 0.36% to 0.45% to the Government.

To qualify for the SFGS, your company must meet all of the following requirements:

• Must be a sole proprietorship, partnership or unincorporated body of persons which has business operation in Hong Kong and remains registered under the Business Registration Ordinance (Chapter 310 of the Laws of Hong Kong)
• Shall not be carrying on the business of a lender or otherwise providing funds available for borrowing in any way
• Shall not be an affiliate of the Lender
• Shall not be a company or corporation which has any of its shares listed on The Stock Exchange of Hong Kong Limited (whether on its Main Board or the Growth Enterprise Market) or any similar exchange in or outside Hong Kong

The core difference between the "80% Guarantee Product" and a "standard bank loan" is that the Government shares 80% of the bad debt risk for SMEs. This brings about the following three straightforward changes:

• Lower Threshold (No Collateral): Standard bank loans place heavy emphasis on property or asset collateral. With the government backing the 80% guarantee, SMEs without brick-and-mortar collateral can get approved much more easily.
• An Additional "Guarantee Fee": Standard loans only require interest payments. While the interest rate for the 80% guarantee is similar, borrowers must pay an additional annual guarantee fee to the HKMCI.
• Stricter Usage Restrictions: Standard loans offer more flexibility in the use of funds. The 80% guarantee must be used for working capital or purchasing equipment and strictly cannot be used to repay old debts.

Yes, a personal guarantee is mandatory. Although the scheme is called a "Government Guarantee," the government's 80% guarantee is only provided to the bank (promising that if the company fails, the government will compensate the bank for 80% of the loss). To prevent borrowers from maliciously shutting down businesses to evade debt, the HKMCI enforces strict co-signing guarantee requirements:

• Major Shareholders: Individual shareholders holding 50% or more of the company's shares must provide a personal guarantee.
• Principal Directors / Ultimate Controlling Persons: If the company does not have a single shareholder holding more than 50% of the shares, banks will usually require the principal director or executive director who holds the most shares or has substantive control over the company to sign the guarantee.