Even before Sars struck, mid-sized firms were saying they lacked cash to grow, but bank loan terms are getting tougher Medium-sized businesses in Hong Kong believe it will be a struggle to expand this year because of the increasing difficulty in getting bank loans in a depressed economy, according to a survey of international business owners. Mid-sized companies in Hong Kong are also more likely than their counterparts in other countries to say that their current sources of financing will not be enough to fuel growth. They also indicated no new jobs would be created. Many Hong Kong businesses also complained red tape was holding back their international expansion, the International Business Owners Survey by accounting firm Grant Thornton found. The findings, compiled last year before the atypical pneumonia outbreak, paint a gloomy picture for mid-sized businesses in Hong Kong, which form the backbone of the economy and are a major source of employment. The results found that Hong Kong companies are among the most pessimistic of those polled in 19 countries. Kevin O'Shaughnessy, a partner at the firm, said the findings reflect the fact that Hong Kong's economy, like Singapore's, is closely linked to the world's other major developed economies in North America and Europe. 'Hong Kong and Singapore are very pessimistic about the overall economic climate,' said Mr O'Shaughnessy. But 'it doesn't take us too much to flip us the other way ... our major trading partner is the USA, so if they're feeling good' Hong Kong will start to feel good again, he said. Many mid-sized businesses in Hong Kong are closely held, with ownership in the hands of family members. As the economy slumps, the owners may not have enough money to finance business plans and may have to turn to outside sources such as bank loans. But the findings suggest that companies could find that tough. Hong Kong's medium-sized businesses, which employ from 50 to 500 people, had the second highest rate of financing from family members or owners, behind Germany. At the same time, Hong Kong companies were third-most likely, at 22 per cent, to say their current source of financing was insufficient to support their business plans in the next three years. About a quarter of local companies also said they had difficulty in getting bank loans, which Grant Thornton said could be blamed on tighter appraisal criteria. 'When economic times are difficult, banks are more cautious,' said Mr O'Shaughnessy. Other findings indicate the city's unemployment rate, which rose to 7.5 per cent in March, will probably not improve this year because most businesses said job creation would stay flat. Nearly half of Hong Kong companies polled said bureaucratic barriers were a major obstacle to their expansion overseas. Mr O'Shaughnessy said most Hong Kong companies have operations on the mainland, where it was 'not easy to do simple things'.