Hong Kong government’s SME Loan Guarantee Scheme
Although the government has the best of intentions; it’s SME Loan Guarantee seems to have more discernible benefits to its participating banks than SMEs.
The government loan guarantees guarantee 80% of the loan; however all banks still require the owners of SME’s to personally guarantee 100% the loans and the government guarantee only applies when the owner is unable to repay the loan and is forced into bankruptcy. The interest charged on the SME loans by the banks are the same as what they were charging without the SME Loan guarantee. So in effect the SME owner; with or without the government loan guarantee is receiving exactly the same deal with the banks except they have to fill in more forms.
The banks on the other hand benefit in everyway; guaranteed return, guaranteed profitability, guaranteed no loan default and guaranteed retention of the same interest rates and bank charges.
The most obvious argument is that the government has helped give confidence to the banks to lend money to SMEs that they may not have had otherwise. However this is inherently flawed, because the banks’ primary business is lending money and if they chose not to do that they will go under; therefore it is as much in the bank’s interest to lend money as it is in the SME’s interest to borrow money with or without government aid.
If the government genuinely wants to help SME’s; they should lend money directly to the SME’s without the banks’ involvement This would reqiure a separate department be setup for handling these affairs and this department would actually serve a useful purpose.
So instead of the an SME Loan Guarantee Scheme it should be called a Banks’ Profitability Guarantee Scheme.
August 17th, 2009 at 5:27 pm
I agree with the above entry posted on July 3rd as I am facing exactly the same situation where every bank that I have applied to basically only wants to lend you the money if your financials are fantastic and if you actually dont need the money. The whole purpose of this loan scheme is supposed to be for companies that need to increase their cash flow during these hard times.
I have been faced with questions like why my business has slowed down during the last 1 year which “duhhhh” the whole world has slowed down.
I have been rejected on the grounds that I (on my own) paid off and closed down my trade lines at some of my banks because I did not require all the trade facilities I was getting due to again the slow down in business.
After paying taxes for the past 15 years and running a profitable company I still cannot get approved for an SME loan simply because my annual sales turnover has dropped during the past 1 year.
This really is a “scheme” to benefit the banks and those that actually dont need the money!!
September 26th, 2011 at 12:44 am
Hats off to woehver wrote this up and posted it.