A government-sponsored loan guarantee firm will start running this week to encourage banks to lend money to Guangdong's small and medium-sized enterprises. The company, with 2 billion yuan (HK$2.27 billion) in Guangdong government funding, will provide loan guarantees of up to 100 per cent to qualified enterprises, including to companies from Hong Kong and Taiwan. Guan Weiping, deputy director of the provincial government's bureau on small and medium-sized enterprises, said he hoped the loan guarantee scheme would encourage banks to provide much-needed funding to cash-strapped companies. He expected the first half of the year to be the most difficult period for SMEs affected by the global economic slump, and hoped the loan guarantee firm would provide timely assistance. Mr Guan said the extent of assistance to SMEs would vary but it was possible for some companies to receive loans that were 100 per cent guaranteed. 'SMEs tend not to borrow from banks,' he said. 'They always prefer to raise capital from friends and families, but when bad times come, they don't have sufficient proof to persuade banks to lend to them.' The maximum guaranteed amount for a company will be 1 million yuan. In Hong Kong, the maximum guarantee amount for a small or medium-sized company is 70 per cent of the approved loan. The export-oriented province has been badly affected by the global financial crisis, with thousands of factories shut and millions of migrant workers unemployed. Guangdong's economic growth dropped to 10.1 per cent last year, while its forecast GDP growth for this year is only 8.5 per cent, the lowest since the mainland started economic reforms 30 years ago. Mr Guan said both banks and SMEs were facing enormous pressure. Under the stimulus package rolled out more than three months ago, banks were given an official target for making loans to SMEs, but they have often found it hard to find qualified candidates. SMEs, in dire need of cash to stay up and running as overseas orders dwindle, are often rejected by banks because they are not in good financial shape. In order to facilitate the loan guarantee scheme, the province also plans to spend another 1 billion yuan on a matching programme to provide funding to cities that come up with effective relief measures for SMEs in their areas. Under the plan, the provincial government will provide affluent cities half the funds for their programmes. Less well-off cities will be given 80 per cent of the funds.