A special scheme to provide HK$10 billion in loans for small and medium-sized businesses was announced by the government yesterday.
The new scheme will allow such firms to borrow a maximum of HK$1 million from financial institutions, of which up to HK$500,000 can be used as revolving credit.
The administration will provide a 70 per cent guarantee to loans granted by banks, instead of 50 per cent under the existing scheme, giving it a liability of up to HK$7 billion. 'We believe this special loan scheme will help SMEs to obtain necessary relief amid the current credit crunch under the very stringent external environment,' Secretary for Commerce and Economic Development Rita Lau Ng Wai-lan said, adding that the scheme would be an incentive for banks to resume lending.
Under the scheme, borrowers will have a six-month repayment grace period during which they may pay back the interest only. After this, the loan will be repaid over a maximum of two years.
A government spokesman said the scheme was expected to benefit about 10,000 to 15,000 - or 3.5 per cent to 5 per cent - of the 290,000 small and medium-sized businesses in the city.
The estimated bad debt rate for the scheme was 10 per cent, which meant the government stood to lose HK$700 million. To avoid abuse of the scheme, the spokesman said firms could not use it for paying or restructuring debts, while proprietors or majority shareholders of the firms would have to carry personal liability for the loan.
Companies registered and operating in Hong Kong for more than one year with a maximum of 50 staff, or fewer than 100 for manufacturing firms, will be eligible to apply.
The business sector, lawmakers and small and medium-sized firms' associations welcomed the scheme. But some said the maximum loan amount of HK$1 million was too small, while others feared banks might still be too cautious in lending.
Applications will be open for six months and may be extended subject to review.
Mrs Lau also said the Export Credit Insurance Corporation would increase cover, providing it for six emerging markets, including the United Arab Emirates and Brazil, with lower premium rates.
The Legislative Council's commerce and industry panel will discuss the loan plan tomorrow.
It was subject to Finance Committee approval, the government spokesman said.