[Updated] FAQ – Application for the SME Financing Guarantee Scheme (SFGS) | Article – HSBC VisionGo

This article aims to prepare SMEs in applying for the SFGS by covering potential challenges that may be encountered in the application process.
Finance  ·    ·  4 mins read

Small and medium-sized enterprises (SMEs) may at times have financing or loan needs. In the midst of an economic downturn, many SMEs will be faced with increased operating pressure. To ease the business burden on SMEs, the Government launched the SME Financing Guarantee Scheme (SFGS) a few years ago and has been continually enhancing SFGS with differentiated loan products. In recent years, it introduced 80% Guarantee Product (SFGS 80), 90% Guarantee Product (SFGS 90) and the Special 100% Loan Guarantee (SFGS 100).

Under SFGS, the Government guarantees loans to help SMEs in Hong Kong secure financing with lower interest rates. Moreover, the application deadline of SFGS has been extended to 30th June, 2022. This article aims to prepare SMEs interested in applying for the SFGS by covering potential challenges that may be encountered in the application process.

1. Am I restricted to applying for SFGS only through banks that I currently bank with? Is it easier to obtain their approval?

Businesses interested in the SME Financing Guarantee Scheme (SFGS) can apply through any bank. It is worth noting that banks in general require the applicant to have an existing bank account with them when they process the application. Therefore, banks will usually request businesses to open a bank account when they apply for SFGS.

As banks assess the applicant company’s risk profile when approving loans, there is no doubt that businesses will have certain advantage when they apply to the bank they normally bank with. This is because the bank will already have some of the company’s past business records, thereby enabling the bank to better grasp the company’s operating condition. Also, banks can offer more competitive lending rates for SFGS 90 and SFGS 80 depending on the length of the relationship between the applicant and the bank. 

2. Do banks currently offer concessions and rebates under the SFGS?

Different banks offer different benefits to SMEs under the SME Financing Guarantee Scheme (SFGS). SFGS 90 and SFGS 80 are most commonly accompanied with a subsidy on the guarantee fee (i.e. the guarantee fee paid to the HKMC Insurance Limited, HKMCI). HSBC, for instance, provides 100% subsidy of the first-year guarantee fee and 50% subsidy of the second-year fee to successful applicants, valid until the end of June 2022. The guarantee fee subsidy is capped at HK$25,000 each year, which amounts to a maximum subsidy of HK$50,000 for two years. Banks may offer principal moratorium and waive loan handling and account opening fees. 

The Special 100% Loan Guarantee (SFGS 100) is different from the other two. The Government has laid down a main principle that the annual interest rates offered by banks are to be set at HKMCI Prime Rate minus 2.5% per annum (i.e. the prevailing effective rate is 2.75%)*, and that the guarantee fee is to be waived. As for repayment period, the maximum length of time to repay is 8 years. Additionally, businesses can repay the interest without having to pay the principal up to 24 months. For more details, please contact individual banks. 

3. Can I apply for multiple Guarantee Products at the same time if my company is eligible for SFGS 100, SFGS 90 and SFGS 80? Will this affect how my application gets approved? Will there be any difference in the lending rates if I apply for multiple Guarantee Products? 

The Special 100% Loan Guarantee (SFGS 100) is different from the other two Guarantee Products. The Government has standardised the annual interest rate at Prime Rate minus 2.5% per annum (i.e. the prevailing effective rate is 2.75%)*. As such, irrespective of your application to any bank, you will get the same interest rate on the loan.

If businesses meet the application requirements of more than one product, it is recommended that they assess their financing needs. For instance, if the financing needs are less than HK$6 million, and if the sales turnover has declined by more than 30%, they can first apply for SFGS 100; if the business lacks business operation records, or their financing needs are less than HK$8 million, they should consider applying for SFGS 90.

No matter which Guarantee Product(s) you apply for, the bank will treat each application as a single loan application, and will make the loan decision based on their standard risk assessment. As such, the annual interest rate should not vary much. On the other hand, it is noteworthy that HKMCI may want to find out why the business has submitted multiple applications, which may affect the approval process.

Besides, under the enhancement measures, the Government will provide interest subsidy for the 80% and 90% guaranteed loans, with the amount of subsidy subject to a cap of 3%.  Each loan is entitled to an interest subsidy for a maximum period of 12 months. The payment of interest subsidy will be automatically deposited into relevant bank accounts, and no application is required.

Finally, note that SFGS 80 and SFGS 90 offer slightly different types of loans. SFGS 90 offers only installment loans, while SFGS 80 offers trade finance and revolving loans. Therefore, businesses should consider SFGS 80 if they have higher capital needs, or wish to have a tailor-made Guarantee Product.

4. I have applied for one of the Guarantee Products, yet I want to increase the amount of financing, what do I do?

In the event of a sharp drop in sales turnover, consider applying for the Special 100% Loan Guarantee (SFGS 100) to get a loan up to HK$6 million. The Government announced that, in order to further alleviate the cash flow pressure of small and medium-sized enterprises, the maximum amount of loan per enterprise under SFGS100 is raised to HK$6 million(originally HK$5 million) or from the total amount of employee wages and rents for 18 months(originally 12 months), whichever is lower.

Meanwhile, the maximum repayment period of the guaranteed loans is increased from 5 years to 8 years. Borrowers with existing loans under the SFGS100 can apply to their lending banks for increasing the loan amount and/or extending the repayment period if they deem appropriate, and in general no additional supporting documents will be required. 

If a business has applied for one of the Guarantee Products such as SFGS 90 and needs additional funds, they may discuss with banks their need to apply for SFGS 80 as a means to meet their new funding requirements. For example, consider a business that has borrowed HK$8 million of SFGS 90 (i.e. which is the maximum amount for that particular loan product), and has a subsequent funding need of HK$5 million. This company may apply to banks for SFGS 80. The loan terms and conditions of the original SFGS 90 will not be affected by the new application, and the guarantee fee for both applications will not increase as a result.

* HSBC offers its Prime Rate – 2.25% which means its prevailing effective rate is also 2.75%

SFGS 80,SFGS 90 and SFGS 100 will receive applications till 30 June 2022.

For more information on products under the SME Financing Guarantee Scheme (SFGS) and application procedures, you may read relevant articles on HSBC VisionGo:

Reminder: "To borrow or not to borrow? Borrow only if you can repay!" 
HSBC reserves the final decision on application approval. Please refer the terms and conditions of the application form.