• Q & As for PLIs

    A. Process of Application for the SGS Loan Guarantee

    Guarantee Application

    1. How does the SME Loan Guarantee Scheme (SGS) help small and medium enterprises (SMEs)?

      The SGS aims to help SMEs secure loans from the participating lending institutions (PLIs) for acquiring business installations and equipment or meeting working capital needs of general business uses. The amount of guarantee for each SME is 50% of the loan amount approved by the PLIs, subject to a maximum total guarantee amount of $6 million.

      The application period of the SGS has closed on 31 March 2021. Before the closure of application period, enterprises(1) meeting the following criteria were eligible for the SGS:

      1. registered under the Business Registration Ordinance (Chapter 310) and with substantive business operation(2) in Hong Kong;
      2. an SME(3) under the definition of the Government of Hong Kong Special Administrative Region;
      3. not an associate of the lender; and
      4. not carrying on the business of a lender.

      An SME that has been established for 18 months or more is required to submit its latest audited account (for a limited company) or its latest statement of accounts (for an unlimited company) to the PLI at the time of submitting loan application.

      The guarantee period is up to a maximum of five years, counting from the first drawdown date of the loan. Applicants are required to repay the loans to the PLls by instalments. If an enterprise has fully repaid the Business Installations and Equipment Loan(s) or Working Capital Loan(s) backed up by the guarantee under the Scheme, the enterprise may use the respective guarantee amount one more time for acquiring new loan(s), subject to a maximum guarantee amount of $6 million

      Note

      (1) Enterprises

      “Enterprise” refers to a legal entity which is engaged in any form of business for the purpose of gain. Non-profit-making or non-profit-distributing organisations are not eligible.

      (2) Substantive Business Operation

      To be eligible for the SGS, an enterprise should have substantive business operation in Hong Kong. A business holding a shell business registration or having most of its main business operation outside Hong Kong will not be regarded as having substantive local business operation.

      (3) SME

      An SME is a manufacturing business which employs fewer than 100 persons in Hong Kong; or a non-manufacturing business which employs fewer than 50 persons in Hong Kong.

      “Number of persons employed” shall include proprietors/partners/shareholders actively engaged in the work of the business, and all salaried employees of the enterprise at the time of submitting applications. Such employees, including full-time or part-time salaried personnel, both permanent and temporary, must be directly paid by the enterprise.

    2. If the Borrower engages in more than one type of business, how should this be reflected in 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.

    3. If the Borrower is a sole proprietor and does not have any employees, is it correct to put down "zero" in Part A of the Application Form on number of employees in Hong Kong?

      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 fewer than one.

    4. What types of documents a PLI should obtain from a Borrower for credit assessment? If a Borrower is unwilling to provide the required documents, will it affect the PLIs' right in making a default claim?

      The Deeds for the SGS (i.e. the original Deed for the SGS as amended by the Supplemental Deed signed between the TID and individual PLIs) have clearly spelt out the PLI's obligations including the need to obtain audited accounts/financial statements to facilitate credit assessment.  The PLIs should exercise due diligence and care in considering the types of documents, in addition to those specified in the Deeds, that are required from the Borrower for the purpose of assessing the creditworthiness of the Borrower before granting a facility.

      It is the TID's normal practice to, after a default claim is lodged, request a PLI to provide the relevant documents obtained from the Borrower during the loan application stage.  If the PLI considers that, despite the absence of certain documents, there are still sufficient grounds to support the granting of the facility, the PLI should, during the default claim stage, provide justifications to explain the rationale behind its decision.  The TID will consider them on a case-by-case basis.  For details, please refer to the "General Guidelines on Submission of Default Claim" promulgated by the TID.

    5. My bank adopts a credit scoring system in considering loans of smaller amount. Under the credit scoring system, we would not consider information found in the financial statements. Is this acceptable under the SGS?

      The TID would rely on the professional judgement of the PLIs in determining the factors to be considered in assessing the creditworthiness, repayment ability and business prospects of the Borrower before granting the loan.  In practice, during the default claim stage, PLI would need to demonstrate to the satisfaction of the TID that it has exercised professional judgement and due diligence in the loan approval process.  One of the major factors that the TID would consider is whether a particular practice in handling loans guaranteed under the SGS is consistent with the prevailing practice of the PLI (i.e. applying across-the-board to both loans guaranteed and not guaranteed under the SGS).  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.

    6. In case the Borrower is still preparing for its business' audited accounts/financial statements of the latest financial year, is it acceptable for the Borrower to pass its preceding audited accounts/financial statements to the PLI?

      In general, the Government allows a nine-month period from the end of the latest financial year of the Borrower’s business for the Borrower to prepare the relevant audited accounts/financial statements.  If the loan application is made within the above grace period, it will be acceptable for the Borrower to provide only the preceding audited accounts/financial statements.

      If the required audited accounts/financial statements represent the first accounts of the Borrower's business, they are expected to be available 18 months after the date of establishment of the Borrower's business.

    7. Can a PLI grant a facility which is denominated in foreign currency?

      The Deeds for the SGS have stipulated that a facility shall be denominated in Hong Kong dollars.  While some PLIs may grant a facility in foreign currencies, the loan amount should be stated in (or converted into) Hong Kong dollars in the Guarantee under the SGS.

    Notification of Result of Application

    1. Can a Borrower draw down a loan upon the issue of a Notification of Result of Application for Business Installations and Equipment / Working Capital Loan Guarantee (i.e. AIP) by the TID?

      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.

      The PLIs are however reminded that drawdown of the loan (i.e. the starting date of the facility) should not be earlier than the date of the AIP.

    2. How to inform the TID of any changes after issue of the Notification of Result of Application for Business Installations and Equipment / Working Capital Loan Guarantee (i.e. AIP) but before the issue of formal Guarantee?

      The PLI should inform the TID of any changes by providing the correct information on TID602 and TID603i or TID642 and TID643.

      If the changes involve an upward amendment of the loan amount leading to higher guarantee amount or extension of the guarantee period prior to the drawdown of the facility, full justifications in writing should be provided.  The TID will consider the request on a case-by-case basis.  If accepted, the TID will issue to the PLI the formal Guarantee with the changes incorporated.  Please note such changes after drawdown of the loan will not be accepted.

    Issue of Guarantee

    1. Is it necessary for a PLI to submit a facility letter in returning the Confirmation of Particulars of Business Installations and Equipment / Working Capital Loan Guarantee (TID602/TID642) and Acceptance of Conditions for the Issue of A Guarantee for Business Installations and Equipment / Working Capital Loan (TID603i/TID643)?

      Normally, it is not necessary for a PLI to provide a copy of the facility letter when returning TID602/TID642 or TID603i/TID643.  The PLI only needs to submit the facility letter upon request by the TID.

    2. In case there are any changes after issue of a Guarantee, is it necessary to inform the TID?

      The PLIs should provide the TID with accurate information at the time of returning the Confirmation of Particulars of Business Installations and Equipment / Working Capital Loan Guarantee (TID602/TID642).  The TID will consider requests for changes after issue of Guarantee on a case-by-case basis.  The PLIs will be required to provide supporting documents and the TID reserves the right to approve/reject such requests.

      For changes such as loan amount, risk sharing ratio, guarantee limit and guarantee period prior to the drawdown of the loan, if such requests are accepted by the TID, a new Guarantee for the loan will be issued to the PLIs.  The PLIs should however note that any request for upward amendment of the loan amount leading to higher guarantee amount or extension of the guarantee period will not normally be accepted.  Moreover, such changes after the drawdown of the loan will not be accepted.

      Regarding other changes such as designated bank account number and interest rate, the PLI should notify the TID in writing as soon as such changes are made.  The TID will only acknowledge receipt of the written notification but will not issue a new Guarantee.

    B. Requirement of Substantive Business Operation

    1. Is "substantive business operation" a new requirement to the SGS? If not, why is it necessary to revise the Deeds for the SGS by way of Supplemental Deeds?

      No.  The requirement of "substantive business operation" is an existing condition required under the SGS.  The requirement has been enshrined in the SGS Deeds since the commencement of the SGS and underlined in the Application Form.  The intention of introducing the Supplemental Deeds is to make the requirement more expressly stipulated in the Deed.

      For details about the requirement, please refer to the "Guidelines on the requirement of substantive business operation" (the Guidelines).

    2. The Guidelines for "substantive business operation" has included a list of relevant considerations and supporting documents. Is it necessary to provide all the information stated in the Guidelines when submitting applications/default claims to the TID?

      Normally, the PLIs will be required to provide the information and documentary proof only when a default claim is submitted, but the TID may also request such information during the application stage if considered necessary.  As regards the type of information required, it would depend on the circumstances of individual cases.  For example, if an enterprise's substantive business operation in Hong Kong can be easily identified from its audited accounts (e.g. contribution to Mandatory Provident Fund), the PLI may not be required to provide other documentary proofs.

    3. The Guidelines have stipulated that reference will be made to the capital investment of the enterprise in Hong Kong. Is there a minimum threshold of capital required?

      No.  Given the diversity of the business nature of individual enterprises, we have not set any minimum capital requirement.  Capital investment is only one of the many aspects that may serve to demonstrate that an enterprise has substantive business operation in Hong Kong.  Please refer to the Guidelines for the list of other possible aspects.

    C. Guarantee Application involving Related Companies

    1. Under what circumstances will companies be regarded as related companies?

      Related companies refer to companies with common shareholder(s) whose equity interest is 30% or more in each of the companies.

    2. Can related companies submit separate loan guarantee applications under the SGS? If yes, what are the procedures involved?

      Any enterprises fulfilling the eligibility criteria of the SGS may submit applications under the SGS.

      In processing an application, if it is found that the Applicant’s related company(ies) is/are applying for or has/have been approved with guarantee(s) under the SGS and if the cumulative amount of guarantees being sought by/already approved for the Applicant and its related company(ies) exceeds the guarantee ceiling of $6 million, the TID will obtain additional information from the PLI to ascertain that:
       

      • the business nature in respect of the Applicant and its related company(ies) are different and the common major shareholder(s) of these companies are not trying to use different business registrations to circumvent the loan guarantee ceiling; and
       
      • the PLI is aware of and has taken into account the overall credit risks relating to the loans being sought/already obtained by the common major shareholder(s) of the Applicant and its related company(ies).


      In this regard, the PLI is required to complete and submit to the TID the additional form “Additional information on Related Companies” (TID608) to provide additional information such as:

      • information on the new/approved SGS applications in respect of the Applicant and its related company(ies);
       
      • information on the shareholding of the Applicant and its related company(ies).  If the common shareholder(s) are corporates, the PLI should provide further information of the natural person holding or the ultimate shareholders of the corporates in question; and
       
      • its assessment on the differentiation of the principal business of the Applicant and its related company(ies) in terms of business nature, markets, clienteles, products, production factories, suppliers, etc.

      Based on the information and assessment provided by the PLI, the TID will consider the application on a case-by-case basis.  Please note that applications involving related company(ies) would normally take longer time to process.

      In respect of those applications where the cumulative amount of guarantees being sought by/already approved for the Applicant and its related company(ies) is within the guarantee ceiling of $6 million, it is not necessary for the PLI to complete and submit TID608.  The TID will however inform the PLI in writing of the SGS records of the related company(ies) and remind the PLI to consider the overall credit risk relating to loans being sought/already obtained by the Applicant and its related company(ies).  Because of privacy concerns, the TID will not disclose details of the related company(ies) on their guarantee applications.  The PLI should obtain such information from the Applicant direct.

    3. In completing "Additional Information on Related Company(ies)"(TID608), are PLIs required to obtain prior consent from relevant parties before disclosing the relevant information to the TID?

      Yes.  The PLIs are required to obtain consent from the Applicant and its related company(ies) in disclosing the relevant information contained in TID608 to the TID.  The PLIs are also required to obtain consent from the Applicant and its related company(ies) for the TID to disclose such information to other relevant parties for the purpose of processing the applications under the SGS.

    D. Submission of Default Claims

    1. What should be done to submit a default claim?

      If a Borrower fails to repay a loan guaranteed under the SGS on a repayment date and the overdue remains outstanding 61 days after the relevant repayment date, the PLI may lodge a default claim with the TID.  The PLI is required to submit a completed Payment Request Form, together with the Questionnaire on Default Claim and other supporting documents required, to the TID within six months after the earliest relevant repayment date of the defaulted loan.  For details, please refer to the “General Guidelines on Submission of Default Claim”.

Enquiries

For general enquiries about the SGS, please contact:
Address:
SME Loan Guarantee Scheme Section
Trade and Industry Department
15/F, Trade and Industry Tower,
3 Concorde Road, Kowloon City, Hong Kong
Tel.:
2398 5129*
Fax:
2396 5067
Email:
sgs_enquiry@tid.gov.hk

* With effect from 28 April 2008, all telephone conversations on the enquiry hotlines of the TID shall be recorded to ensure service quality.  The recorded conversations will be kept for 90 days.  Members of the public may request for conversations relevant to them recorded in 90 days on a CD, at a charge of $57 per CD.

 
Last Revision Date : 26 March 2024