Policy Statement & Submission

16 April 2002
Our Ref: SME/CC/82

Mr Eugene Fung
Assistant Director General of Trade and Industry
Trade and Industry Tower
700 Nathan Road
Kowloon

　

Dear Eugene

SME Business Installations and Equipment Loan Guarantee Scheme

As you know, the Chamber supports the four funding schemes recently set up by government for small and medium enterprises. We have encouraged our members to make use of these schemes. To help make the schemes successful, we collect our members' feedback from time to time. I would like to take this opportunity to reflect some of our members' views, specifically, on the SME Business Installations and Equipment Loan Guarantee Scheme. These views are summarised as follows.

An oft-heard view is that banks still adopt the usual practice of requesting for collateral for loans, even if it were understood clearly that the loan in question is for purchase of equipment and machinery. The government guarantee had apparently been of little consideration; banks were still using the same brick-and-mortar mentality in assessing its own portion of risk. As all applications have eventually to be submitted by banks, SMEs which did not have property as collateral could not enjoy the benefit of the government guarantee. Some names of specific banks have been mentioned and I would be happy to communicate to you if required.

Another concern was that banks were not willing to grant loans on software in general because of the short product life span, not to mention tailor-made software. Again, banks would ask for collateral such as property, stocks, time-deposits, etc. One bank indicated that loan could be considered for 50% of the actual product value but personal guarantee would be required in addition to the government guarantee, plus the loan should not be less than $100,000 but it should not be too big either.

There was a feeling therefore that the attitude of banks has not been helpful in encouraging success of the Scheme. In any case, under the current economic climate, a loan guarantee scheme for purchase of machinery is not realistic as small and medium enterprises are generally reluctant to invest in new equipment. Secondly, the scheme will at best help those enterprises to raise money for machinery sent to China of which the banks have even more reservations on the suitability of machinery as collaterals. Some SMEs have suggested that a general loan scheme similar to the special finance scheme a few years ago would be of more practical help under the current adverse economic situation. This may merit some consideration.

Some members have raised the more general issue that the scheme seemed to give insufficient attention to service industry especially on their needs for working capital to hire more talents. I am not sure how many of the users are service industry SMEs as opposed to non-services SMEs; perhaps I should just leave that thought to you.

I hope you will find these views useful. If you would like an occasion to review progress of these Schemes with our members, we shall always be happy to arrange.

　

Yours sincerely,

　

K K Yeung
Chairman, SME Committee

(Ends)