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Finance and Cash Flow
Sources of finance
Preparing a loan application
How your loan application will be reviewed
Types of finance
Government loans and funds
Cash Management Guide
Sources of Finance
- Personal savings
- primary source of start-up finance
- interest-free
- limited amount can be drawn - Friends and relatives
- private source of start-up finance
- interest-free or very low interest rate
- you may have to repay the money at short notice, causing disruption to your business operations or planning - Banks and financial institutions
- grant loan based on business plan
- loan schedules are preset making cash management more predictable
- interest payments are tax-deductible
- assets may be tied down as collateral - Venture capital organisations
- specialise in investing in unquoted companies
- strong competition for venture capital
- you relinquish complete control of your company, as you are selling part-ownership to an outside investor - Angel funding
- usually involves a wealthy individual who invests in a company in return for shares in that company
- you relinquish complete control of your company, as you are selling part-ownership to an outside investor - Government loans and funds
- the Hong Kong SAR government offers various loan and grant schemes for SMEs
See our 5 Steps to Raising Finance guide
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Preparing a loan application
You may need to include some or all of the following:
- Personal financial statements
- Three years' profits tax and financial statements
- Year-to-date profit and loss and balance statements
- Projected cash flow statement for the next 12 months
- Business plan
- Documentary proof of ownership of the asset to be secured against the loan
See our Loans and Finance section
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How your loan application will be reviewed
- Have you invested savings or personal equity in your business, and are these investments a reasonable percentage of the loan you are requesting?
- Do you have a sound record of credit-worthiness, work history and letters of recommendation?
- Do you have the experience and/or training needed to operate a business?
- Do you have a business plan and loan proposal outlining your understanding of the business?
- Does your business have sufficient cash flow to repay the monthly instalments?
- Do you have the ability to repay the loan?
- What assets can you provide as security for the loan?
See our Loans and Finance section
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Types of finance
Overdraft
- Provides additional working capital
- Can be granted in Hong Kong dollars and many major foreign currencies
- You can overdraw your current account up to an agreed limit, and reduce the outstanding balance by depositing money at any time
Bank term loans
- Provide fixed-term finance for longer periods
- Fixed-term loans are often secured for a charge against company assets and require you to sign legally binding covenants
Hire purchase and leasing
- Alternative ways to finance the purchase of vehicles, plant and equipment
- With hire purchase, the asset is purchased by the bank and hired to you; ownership passes to you when the last instalment has been paid
- With leasing, the bank buys the equipment and leases it for an agreed period of time
- While leasing payments are tax deductible, hire purchase customers enjoy tax benefits through initial and annual tax allowances
Factoring
- For business operators who sell on open account terms
- Cash is available as soon as you issue invoices
- Factoring is both flexible and geared to current sales volumes with limits that can be adjusted rapidly as sales volumes grow
Trade finance and related services
- Exporters and importers can settle trade debts via documentary credits - the importer is only required to pay exporters who have fulfilled the necessary credit requirements; exporters can look to the issuing bank for payment, instead of relying on the importer's ability or willingness to pay
- You can also apply for import and export loans
- Exporters can obtain finance before or after the shipment of goods
See our 5 Steps to Raising Finance guide
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Government loans and funds
SME Loan Guarantee Scheme
- Provides a government guarantee to help SMEs secure loans from financial institutions to acquire the installations and equipment they need to enhance productivity and competitiveness
- The installations and equipment may include machinery, tools, computer software and hardware, communication systems, office equipment, transport facilities, furniture and fixtures
- HSBC is one of 48 lending institutions which participate in this scheme
From end of March 2003, the Government has increased the maximum amount of business installation and equipment loan guarantee from HKD1 million to HKD2 million; extended the guarantee period from 3 years to 5 years; and expanded the scope of guarantee to include two types of working capital loans. The first type is a loan for SMEs to meet increases in operational expenses as a result of purchase of or enhancement in business installations and equipment. The second type is for SMEs to obtain loans by presenting accounts receivable. The maximum amount of guarantee is up to HKD1 million per SME for a maximum period of two years for each of the above two types of working capital finance.
SME Training Fund
- Encourages Hong Kong SMEs to provide training designed to enhance the skills and competitiveness of employers and employees
From February 2003 onwards, the maximum amount of grant an SME may obtain, on a cumulative basis, for employers' training has been increased from HKD5,000 to HKD10,000, and that for employees' training has been increased from HKD10,000 to HKD20,000. In other words, the total maximum amount of grant an SME may obtain under the fund will be increased from HKD15,000 to HKD30,000. Moreover, SMEs are allowed to submit applications for the fund either before or after the commencement of the training course. In the case of the latter, applications have to be submitted no later than 30 days after the completion of the courses.
SME Development Fund
- Provides support for projects aimed at improving the competitiveness of SMEs undertaken by non-profit-distributing support organisations, trade and industrial organisations, professional bodies and research institutes
- Projects eligible for such funding include award schemes, best practices, conferences, seminars, databases, exhibitions, service centres, support facilities and technological demonstrations
The maximum funding support for each approved project will be HKD2 million, or 90% of the total project expenditure, whichever is the lower.
SME Export Marketing Fund
- Helps SMEs expand their businesses through active participation in export promotion activities
- The Fund provides grants to SMEs who participate in overseas trade fairs/exhibitions and study missions, or take part in local trade fairs/exhibitions which are export-oriented
The export promotion activities in question must be organised by experienced and reputable export promotion organisations/companies and directly relevant to the applicants' business.
From February 2003 onwards, the maximum amount of grant an SME may obtain from the fund has been raised from HKD10,000 to HKD40,000. There is no limit on the number of export promotion activities an SME may apply for the fund, as long as the ceiling of HKD40,000 is not exceeded. The maximum amount of grant for each successful application is HKD20,000 or 50% of the total expenditure on fundable items of the approved export promotion activity, whichever is the less.
Small Entrepreneur Research Assistance Program
- Encourages innovation, technological research and technology application among SMEs
The government contribution to each project has a maximum limit of HKD2 million.
Applied Research Fund
- Provides capital in the form of equity participation for promising technology businesses and applied research development programmes
- The company benefiting from such funding will hold all intellectual property rights arising from the research
Patent Application Grant
- Encourages companies and individuals to apply for patents on behalf of their inventions
All local registered companies and individuals, who have never owned any patents before are eligible to apply for a grant of not more than HKD100,000 or 90% of the total cost of the patent application, whichever is the less.
Export Credit Insurance
- The Government provides a wide range of export credit insurance facilities through the Hong Kong Export Credit Insurance Corporation (ECIC)
- The facilities offer credit periods of up to 180 days to local exporters, including SMEs, to use for credit transactions with overseas buyers
- Financial institutions may undertake to accept ECIC policies as valid collateral for discounting export bills and offer loans to SME exporters holding such policies
Disclaimer:
This section is intended as a general guide for reference only.
The information contained in this section should not be relied upon as a substitute for professional advice in individual cases. Future changes in legislation, tax levels and practice could affect the information in this site.
The information shown is based on data or information obtained from sources believed to be reliable but HSBC makes no representation and accepts no responsibility as to its accuracy or completeness and will not be hold liable for damages arising out of any person's reliance upon this information.
Cash Management Guide
Our handy Cash Management Guide provides a quick overview of 5 steps to effective cash management
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