Special Loan Guarantee Scheme

If the Borrower engages in more than one type of business, how should this be reflected in the application form?

Supplemental Deed

Second Supplemental Deed
Substantive business operation

Payment during grace period

Implementation matters

Closing of the Application Period

Yes. A PLI may release the loan to the Borrower once the AIP is issued. It is not necessary to wait for the formal guarantee before the Borrower is allowed to draw down the loan.

PLIs are however reminded that the draw down date of the loan (i.e. the starting date of the facility) and the date of the facility letter should not be earlier than the date of the AIP.

The Deed (note 1) for SpGS has stipulated that a facility shall be denominated in Hong Kong dollars. While some PLIs may grant a facility in foreign currencies (e.g. trade finance in US dollar), the loan amounts should be stated in (or converted into) HK dollar in the guarantee under SpGS.

note 1: The Deed herein refers to the original Deed as amended by the Supplemental Deed and the Second Supplemental Deed.

PLIs may term-out a facility of revolving nature at a suitable juncture to ensure an orderly repayment of the outstanding loan before expiry of the guarantee period. There is no need to seek prior approval from TID, but the PLI should inform TID in writing before such term-out arrangement takes effect.

No. A change of the dedicated account number arising from this arrangement would not void the guarantee issued by TID. The PLI concerned should keep proper record of the changes made and inform TID accordingly.

PLIs should provide accurate information to TID at the time of returning the Confirmation of Particulars of Special Loan Guarantee (TID 652). TID will consider requests for changes after issue of guarantee on a case by case basis. PLIs will be required to provide supporting documents and TID reserves the right to approve/ reject such requests.

For changes such as loan amount, risk sharing ratio, guarantee limit and guarantee period, a new guarantee for the facility concerned will be issued if the requests are accepted. PLIs should however note that any request for increase in loan amount which will lead to an increase in the guarantee amount and extension of the guarantee period will not normally be accepted. Regarding other changes such as designated bank account number and interest rate, TID will only acknowledge receipt of the written notice but will not issue a new guarantee.

Depending on the type of business of the Borrower, the guarantor(s) should either be (i) the sole proprietor, (ii) partners, (iii) shareholder(s) who together hold(s) more than 50% equity interest; or (iv) authorized person(s) in the case of limited company providing a corporate guarantee.

Supporting documents include the following :

Additional supporting documents will be required in case the above supporting documents cannot illustrate fully the equity share of the shareholder(s) of the Borrower concerned, irrespective of whether the shareholder(s) is/are guarantors.

Additional guarantor(s) may be a natural person or a company other than those mentioned in question 6 above. Normally, they do not have an equity interest in the company but are additional guarantor(s) obtained by the PLI related to the facility. The PLI should provide such information in Part C, item 13 instead of Part B. The name, HK ID card number (for natural person), and BR certificate number (for sole proprietor and partnership)/ Certificate of Incorporation number (for limited companies) should be clearly stated.

For additional pledge such as property, detailed information should also be provided in Part C, item 13.

To be eligible for SpGS, enterprises must be registered and with substantive business operation in Hong Kong and have at least one year of operation as at 15 December 2008. The duration of the operation would count from the earliest date of the establishment of the entity of the same Business Registration number.

As stipulated in the Deed (note 1), person(s) (which include an individual, sole proprietorship, firm, partnership, company, corporation and an unincorporated body of persons) who own more than 50% equity interest of the enterprise shall give a joint and several guarantee in favour of the Lender for the full repayment of the indebtedness under the facility. As partners of a partnership with unlimited liability have already assumed full personal guarantee/liability for the debts of the partnership both jointly and severally, it is not obligatory for a PLI to request the partners to provide another joint guarantee in support of the SpGS application. However, the partners are required to complete the declaration in Part B of the application form.

The Applicant is required to provide information regarding its form and type of business in Part A of the application form. The Applicant should only tick one category of business. If the borrower is engaged in more than one type of business, only the major type of business should be chosen.

The number of employees in Hong Kong should include individual proprietors, partners and shareholders actively engaged in the work of the business; and salaried employees of the business, including full-time or part-time salaried personnel directly paid by the business, both permanent and temporary. The number of employees in Hong Kong should not be less than one.

No. It is not obligatory for the PLI to grant a grace period in respect of any non-revolving loan approved.

Yes, if the subsidiary itself is not a listed enterprise and is eligible to apply for SpGS. The listed company can provide a corporate guarantee in support of the application.

The PLI should inform TID of any changes by providing the correct information on TID 652 and TID 653. If the changes involve an upward amendment of the loan amount and guarantee period before the loan is drawn down, full justifications in writing should be provided. TID will consider the request on a case-by-case basis. If accepted, the formal Guarantee to be issued will have the changes incorporated. In case the PLI could not submit TID 652 and TID 653 due to, for example, the draw-down date is not yet fixed, only an acknowledge letter will be issued. The formal Guarantee will be issued upon receipt of TID 652 and TID 653. Please note that changes after the loan is drawn down will not be accepted.

If there are changes after the issue of formal Guarantee, please refer to question 5.

In deciding the right person for signing as the guarantor(s), the PLI should ascertain from the Trust Deed whether the beneficiary has the right to provide personal guarantee to support the application by the Borrower, or the Trustee should provide a corporate guarantee as authorized by the Trust Deed.

PLI should provide information on the beneficiary(ies) of the Trust involved, such as the Trust Deed or a Declaration of Trust. As an alternative, PLI could provide a confirmation from the Borrower's auditor or company secretary on the particulars of the Trust beneficiary(ies), together with a written explanation for the inability to provide the Trust Deed or a Declaration of Trust. Each case will be considered on its own merits.

The Deed (note 1) for Special Loan Guarantee Scheme has clearly spelt out Lender's obligations including the need to obtain financial statements to facilitate credit assessment. PLIs should exercise due diligence and care in considering the type of documents, in addition to those specified in the Deed (note 1), that are required for the purpose of assessing the credit worthiness of the Borrower before granting a facility.

It is TID's normal practice to request a PLI, after a default claim is lodged, to provide relevant documents concerning credit assessment submitted by the Borrower to the PLI when the application was made. If the PLI considers that, despite the absence of certain documents during the application stage, there are still sufficient grounds to support the granting of the facility, the PLI should provide justifications to explain the rationale behind its decision during the claim stage. We will consider on a case-by-case basis. For details, please refer to the "General Guideline on submission of default claim" promulgated by TID.

A letter will be issued to PLIs, together with the Guarantee, for onward transmission to the Borrower. This is a questionnaire for completion by the Borrower. The Borrower should complete the questionnaire (either the English or Chinese version) and return to TID direct within seven days after the specified date on the Guarantee. The Borrower may send in the questionnaire by fax or by post.

It is not necessary for PLIs to provide a copy of the facility letters in returning TID 652 and TID 653 in all cases. Under certain circumstances, we may request the PLI to provide a copy of the facility letter to facilitate us in ascertaining whether the facility granted by the PLI requires approval by the Government (e.g. in case the PLI issues the facility letter before obtaining the Notification of Result of Application for Special Loan Guarantee from TID). PLIs only need to submit the facility letters upon request by TID.

Under the SpGS, the Lender shall establish and maintain a separate account or sub-account for the exclusive purpose of each Facility. If the facility covers more than one category of revolving loan but under the same account, one application will suffice. The requirement of a designated account for each facility is to clearly show the movement of the loan money. The PLIs may decide whether they need to use sub-accounts under the dedicated main account for more than one category of revolving loan with the same terms.

Besides, a trade finance related facility may cover more than one type of facilities, e.g., export or import bills, to meet the business needs of a Borrower. The loan should however not be used, in whole or in part, to pay, repay, restructure or repackage any loans, credit facilities or payment obligations (including loans that are referred to as classified loans by Hong Kong Monetary Authority). However, taking into account the commercial practice of a trade finance related facility, movement of credit between certain related loan types (e.g. import and export bills) within the same facility granted under the SpGS may be acceptable. The Government reserves the right for final decision in case of doubt.

Each enterprise fulfilling the eligibility criteria of SpGS may submit separate applications. For cases involving related companies, TID would need to obtain additional information from the PLIs to ascertain that: (1) the business nature of the companies are different and the owners are not trying to use different business registrations to circumvent the loan ceiling; and (2) the PLIs concerned are aware of and have taken into account the overall risks relating to all the loans obtained by the same owner(s).

Please note that this kind of cases would normally take a longer time to process. To expedite the process, PLIs that are submitting cases involving related companies should provide the information mentioned above to TID as soon as possible.

For most cases, TID will obtain the consent from the applicants for disclosing company specific information, including loan amount and PLIs involved, to other PLIs if the applications involve more than one PLI. We will then request the relevant PLI to provide the additional information mentioned in question 22. Based on the information provided by the PLIs, TID will consider the applications on a case by case basis.

If the PLI is aware that the company(ies) held by the borrower's common shareholders have submitted other applications / been granted guarantee(s) under the SpGS, the PLI should provide the relevant information to the TID by completing an additional form (TID651a) - "Additional Information on Related Company(ies)", which is downloadable from the PLI Corner. This should help speed up the process for cases involving related companies.

Yes. PLIs are required to identify which is/are the related company(ies) and to obtain consent from them for disclosure of application details to the TID. Related companies normally refer to common shareholders whose equity interest is 30% or more in these companies. If there are common corporate shareholders, the PLI should provide further information of the natural persons holding or the ultimate shareholders of the company(ies) in question.

Yes. If the TID finds that the borrower's related company(ies) has/have submitted other SpGS applications to the TID, a deferment notice will be issued informing the PLI that the borrower has related company(ies). The procedures outlined in question 23 will be followed. To speed up the process, the PLI could also complete the TID651a after obtaining consent from the relevant parties. Because of privacy concerns, the TID will not disclose details of the related companies and the applications involved. PLIs are required to obtain such information on their own.

Yes. As indicated on the form, PLIs should provide the TID with audited accounts / financial statements (depending on the form of business) of the borrower as well as the related company(ies), irrespective of whether the related applications have been approved previously. If the documents cannot illustrate clearly the principal activities of the related companies (or the difference of their principal activities), the PLI should submit additional documents such as invoices/purchasing orders, etc., to support their application(s).

It is a requirement under the SpGS Deed (note 1) that a borrower shall not have any outstanding default with any authorized institution as defined in the Banking Ordinance (Cap. 155, Laws of Hong Kong). We understand that in the course of doing business, an enterprise may have considerable transactions with many financial institutions and business bodies, and it may not be possible for the subject PLI to check with all those institutions. As such, in enforcing this requirement, TID would rely on the professional judgment of PLIs in checking the loan profile of the borrower, including, credit reference agencies such as CCRA and, to the best knowledge of the Lender, all bank accounts of the borrower in which the borrower has maintained existing loan or credit facilities.

Yes. As stipulated in the Deed (note 1) for SpGS, all borrowers established for more than 18 months are required to submit audited account or financial statement to the PLIs. However, some flexibility is provided in the Deed (note 1) in respect of the requirement on financial statements. Instead of the financial statement for the latest financial year, the PLI may permit the borrower to submit the latest available financial statement (which could be of the previous financial year), provided it is consistent with the prevailing practice of the PLI in respect of loans granted outside the SpGS (i.e. loans where the PLI will have to shoulder 100% of the default risk), and the practice is consistent with the prudent credit risk management principles as specified by HKMA from time to time.

TID will rely on the professional judgment of the PLIs in determining the factors to be considered when assessing the creditworthiness, repayment ability and business prospects of the borrower before granting the loan. In practice, during the default claim stage, it is up to the PLI to explain their case to satisfy TID that it has exercised professional judgment and due diligence in the loan approval process. One of the major factors that TID will consider is whether such practice is consistent with the prevailing practice of the PLI in respect of loans granted outside the SpGS (i.e. loans where the PLI will have to shoulder 100% of the default risk). The PLI should ensure that the whole deliberation process, including the factors considered, the deliberations and the loan approval process should be well-documented in their credit assessment report or other relevant documents.

Yes, PLIs may write to TID to apply for an upward adjustment of the guarantee exposure ceiling. In making the application, the PLI should provide detailed justifications, such as the current utilization rate, amount of loans being processed by the PLI, etc. to TID for consideration. TID will consider such request on a case-by-case basis.

No. The maximum amount of loan that each enterprise may obtain is $12 million. It is not acceptable to obtain a larger loan even if the PLI is willing to accept a lower guarantee ratio.

If a Borrower fails to repay on a repayment date and the overdue remains outstanding 61 days after the relevant repayment date, the PLI concerned may submit a default claim to TID using the payment request form (TID 655), which can be downloaded from TID's website. Relevant supporting documents (as set out on page 4 of TID 655) should be provided together with TID 655. TID may require the PLI to provide additional documents or information in the course of processing the default claim. For details, please refer to the "General Guideline on submission of default claim" promulgated by TID.

Supplemental Deed

The Supplemental Deed amends the original Deed of the SpGS in order to enable the implementation of the enhanced measures introduced in mid June 2009.

Second Supplemental Deed
Substantive business operation

No. The requirement of "substantive business operation" is an existing condition required under the SpGS. The requirement has been stipulated in the Deed as well as the Guide to Application and FAQs (please refer to question 37 above) since the commencement of SpGS. The intention of revising the Deed is to make the requirement more expressly stipulated in the Deed.

We have also promulgated the "Guidelines on the requirement of "Substantive business operation" under the Special Loan Guarantee Scheme and SME Loan Guarantee Scheme" for reference. The Guideline is available at our website at: http://www.smefund.tid.gov.hk.

Normally the PLIs will be required to provide the supporting information and documentary proof when a default claim is submitted, but TID may also request for such information during the application stage if considered necessary. As regards the kind of information required, it depends on the circumstances of individual cases. For example, if an enterprise's substantive business operation in Hong Kong can be easily identified, it would have less need to provide documentary proof.

No. Given the diversity of business nature of individual enterprises, we have not set any minimum capital requirement in a quantitative manner. This condition is only one of the aspects in considering whether an enterprise has substantive business operation in Hong Kong and reference will also be made to other relevant aspects.

No. The intention of requesting for applicant's client information is to make cross-reference to its business operation, especially its set-up in Hong Kong since what and how enterprises produce/ operate are usually related to the needs of their clients. The type of information required can be general or specific. The requirement is less about the number and percentage of clients / customers in Hong Kong, but more on whether the service required by clients is performed or partly performed in Hong Kong.

As the Guideline is mainly for reference and is not meant to be exhaustive, there would be updates from time to time to include new or additional information. Yet the basic requirement will remain the same, i.e. the borrowing enterprise must have substantive business operation in Hong Kong. We will inform all PLIs in writing of any update/changes.

Payment during grace period

The Second Supplemental Deed provides that if a borrower fails to make any payment (whether principal or interest, and whether within or outside the grace period granted) on the repayment date in accordance with the relevant Facility letter and the unpaid amount remains outstanding 61 days after the relevant repayment date of the Facility, the PLI may submit its claim for payment.

The purpose of the revision is to set out clearly that the PLIs are also allowed to submit defaults claims during the grace period. Under the SpGS, a grace period of six months may be allowed, during which the borrower may repay the interest only. In other words, if a borrower fails to repay the interest required during the grace period, a PLI may also submit a default claim in accordance with the timeframe stipulated in Clauses 4.1 and 4.3 of the Deed, instead of having to wait until the principal is due.

No. As clearly stipulated under the Deed, the Government will only pay up to an amount equal to the Indebtedness remains outstanding, multiplied by the risk sharing factor. Indebtedness refers to the amount of outstanding principal, excluding all outstanding interests, penalties, charges, etc.

Implementation matters

PLIs should use the updated Application Form (TID 651, February 2010) for new applications after the Second Supplemental Deed is executed. As a transitional arrangement, a PLI may provide additional information clearly in Part C of the Application Form (June 2009) (Statement by Lender) to indicate the dates of signing the original Deed, the Supplemental Deed and the Second Supplemental Deed. Specifically, the PLIs should insert "and the Second Supplemental Deed dated dd/mm/yy" after "the Supplemental Deed dated _________ (dd/mm/yy)". To avoid deferments, please be reminded to apply an amendment chop next to the insertion.

The Second Supplemental Deed will become effective when all the contracting parties have signed and executed the Deed. In this connection, the effective date for individual PLIs may vary. Procedurally, TID will confirm with each PLI the effective date once all the formality is completed.

Closing of Application Period

The application period for the SpGS will be further extended to 31 December 2010. This will be the last extension. Trade and Industry Department will stop receiving new applications from the PLIs with effect from 1 January 2011.

With effect from 1 December 2010, TID will put in place the following special arrangements :

(a)To make available additional fax lines for receiving applications.  The numbers are:

Existing fax lines  : 3741 2177 & 3690 1767

Additional fax lines      : 3741 2165, 3741 2592 & 3741 2851

(b)To set up a new dedicated counter for receiving new applications from PLIs delivered by hand.  The location of the counter will be :

Room 409
Trade and Industry Department Tower
700 Nathan Road
Kowloon

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To provide maximum flexibility to the PLIs, we would accept all applications sent in by fax at or before the last minute of 31 December 2010.  In other words, we would, as a special arrangement, accept applications sent in by fax bearing a time stamp between 1801 hr and 2359 hr on 31 December 2010, whereas those sent in on or after 0000 hr on 1 January 2011 will not be accepted.

Please however note that the deadline for new applications delivered by hand will remain at 1800 hr on 31 December 2010.  Applications delivered to us after this timeline will not be accepted.

No.  All applications should be sent by fax or by hand.  Applications sent via other means (e.g. by post, e-mail) will not be accepted.

Besides, PLIs should send in each application only once and not to make duplicated submissions for the same application via different means.

No.  TID will not accept any new applications, including re-submission of rejected applications, after 31 December 2010.  As such, PLIs are particularly reminded to check the completeness of their applications before submitting them to us, especially those sent in shortly before the closing of the SpGS.  Incomplete applications such as those without proper signatures and/or company chops by the Borrower/PLI will be regarded as invalid submissions and rejected by us.  It would not be possible for us to notify the PLIs of all the rejected applications before the closing.

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Yes.  Applications accepted by TID before 31 December 2010 will continue to be processed after 31 December 2010 until all the applications are cleared.

As the SpGS team would likely be very busy on the last few days of December, PLIs should avoid calling the Department to confirm our receipt of their applications.  If the PLI wants to ensure that its applications are duly received by us before the deadline, they should send in the applications by hand as far as possible.  Our counter staff will provide a receipt to the PLI.

The maximum guarantee period for an approved SpGS application is 60 months after the start date of the facility, or up to 31 December 2015, whichever is earlier.  Some applications submitted in late 2010 will be approved  in early 2011.  For those applications, the maximum guarantee period will only be up to 31 December 2015.