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Borrow Smart – Introducing the 90% Guarantee Product

2021-10-05

Last time we shared about the Special 100% Loan Guarantee, but there are actually several other different credit guarantee products under the SME Financing Guarantee Program. Next up, another product that many people apply for – the 90% Guarantee Product.

The 90% Guarantee Product

The 90% Guarantee Product is launched by the Hong Kong Mortgage Corporation Limited under the SME Financing Guarantee Scheme. Its purpose is to assist SMEs and non-listed companies to obtain financing and meet business needs. The Corporation provides 90% credit guarantee for these businesses.

Who Can Apply

  1. Must be a limited company, sole proprietorship, partnership or unincorporated group;
  2. Have business operations in Hong Kong and be registered under the Business Registration Ordinance (Chapter 310);
  3. Non-operating loan business or providing funds for loan business through any means;
  4. A related company that is not a lending institution; or
  5. A non-listed company.

Application Criteria

A company that has no outstanding arrears with lending institutions.

Application Deadline

December 16, 2019 to June 30, 2022.

Loan Amount

The upper limit of the loan amount is HKD 8 million.

Loan Interest Rate and Maturity

The annual interest rate of the loan is 2.5% lower than the Hong Kong dollar prime rate (generally higher than this interest rate), and the upper limit of the annual interest rate will be limited according to the business operation history of the borrowing enterprise:

  1. Having operated for more than 3 years: 8%
  2. Having operated for 3 years or less: 10%

The term of the loan is up to 5 years.

Repayment

Repayment is made in installments, and all borrowings must be fully amortized before the end of the guarantee period. In addition, the borrowing company can apply for up to 12 months of interest repayment without repayment of the principal (18 months if applying before December 31, 2021), so that funds can be used more flexibly.

Pros

  1. High loan amount;
  2. Application is relatively simple;
  3. Great flexibility, as you can increase the loan amount at any time; and
  4. In the first 18 months, you can choose to repay interest but not the principal, which increases cash flow flexibility.

Cons

  1. Interest rates are higher than in the Special 100% Loan Guarantee, thus the cost of borrowing is higher; and
  2. A lump sum repayment in advance requires an additional handling fee.

Application Experience

We have been assisting clients in different industries for application, and we would like to share some of the various problems they have encountered.

  1. Although there is no need to prove a decline in income for this product, financial data must be provided, so you can prepare the income statement for the new year to the most recent three months and the financial statements of the previous year before applying.
  2. The bank will conduct due diligence on customer identities to understand the background and credit history of the company and shareholders, etc. If the bank’s customer identity due diligence is not met, approval will not be given;
  3. Although the company’s loans will be guaranteed 100%, at the same time, the bank will require shareholders to sign a personal guarantee statement, so even if the company goes bankrupt, shareholders have responsibility to repay the debt;
  4. If the company has changed company information, but has not submitted the updated version to the bank, the company will need to fill in relevant bank application forms and submit relevant supporting documents (e.g. Company Registry files). This is because the bank needs to update the information before continuing to process the relevant information, which is why applications may take 1 to 2 weeks longer;
  5. After applying, the fastest approval time is generally one month, but if there are other problems in the way, the approval time will be longer.

To Conclude

90% Guarantee Products have simple application procedures and do not require many documents to be submitted. In addition, the loan amount is relatively large, so it is suitable for companies that need funds to expand their business. However, at the same time, due to the high interest rate of the Product, adequate planning on the purpose of the loan should be done before application. Planning out the amount of loan needed, as well as considering the repayment abilities of you and the company are strongly recommended. Only through smart borrowing tactics can the path to success be paved.

Pacers is a company that provides multifaceted and professional consulting services. We are eager to grow with our clients, so if you encounter any issues on business management, you’re welcome to contact us through our website or email at info@pacersconsulting.com.

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