Hong Kong SME’s funding gap at $21.7b

About 1 in 3 small businesses who need money choose not to get a loan.

Hong Kong small and medium enterprises (SMEs) still struggle to access credit, with the funding gap growing to HK$170b (approximately US$21.72b) as 1 in 3 SMEs in need of credit choose not to get a loan.

The total SME loan balance in the city has remained stagnant since 2018, at around HK$1.8t, according to a study by consulting firm Quinlan & Associates. This is despite Hong Kong’s total loan market growing 2.8% annually over the past six years, even when taking into account the 2018 financial crisis and the pandemic, noted Benjamin Quinlan, CEO & Managing Director of Quinlan & Associates.

This means that the amount loaned out to SMEs have not increased in the past six years, despite SMEs making up 99% of total enterprises. 

Quinlan particularly highlighted the large proportion of SMEs who, despite needing credit, do not apply for a loan. 

More than a third of SMEs with credit demand still do not apply for a loan, thet study found. For those who do apply, the average success rate stands at 66%.

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“It is understandable that lenders exercise caution and often turn  down or partially reject credit applications due to prudent risk considerations. However, the bigger  question is why are there a large number of SMEs who are in need of financing not applying for a loan  at all?’ pointed Quinlan, “The answer lies in their unsatisfactory experience with the financing  process.” 

Lenders’ minimum deposit requirements can be daunting, discouraging potential applicants, Quinlan said, adding that for SMEs who do choose to apply, the processing time for application assessment and account opening tends to be considerably longer, stemming from inherent operational inefficiencies within lending institutions. 

SME owners have also reportedly expressed frustration regarding a lack of transparency and the recurring requests for  documents, including personal guarantee requirements.

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Even after credit approval, lenders may adjust loan terms based on annual or semi-annual financial health assessments, Quinlan & Associates noted.

The study advised SME lenders to utilise alternative data via targeted partnerships to develop customised SME credit scoring models that can pre-qualify loans. 

(US$1 = HK$7.83)