Funding for Entrepreneurs in Hong Kong

Government Grants and Subsidies

Government Grants and Subsidies are sometimes referred to as gift aids. A government grant is an award of financial assistance in the form of money by the federal government to an eligible grantee with no expectation that the funds will be paid back. For example, the Hong Kong government provides a SME Export Marketing Fund (EMF) that aims to provide grants for SMEs. The EMF provides up to HKD$800,000 for enterprises. They can apply for initial payment for their planned export promotion activities using this EMF fund.

The government-funded programs aim to support the local and national economy. The grantee may be an individual, organization, or company. The benefits of government grants include that the economic situation of the government does not determine them.

The funding covers a variety of industries:

• Technology, especially high-risk technologies that meet the federal government’s research and development needs such as biotechnology and healthcare/medicine
• Food & nutrition companies
• Science
• Commerce
• Agriculture

However, before opting for a government grant, an entrepreneur must be sure to know the advantages and disadvantages involved to decide if it is a suitable path for one’s business or not.

Advantages of Government Grants

1. Government Grants are not like bank loans, it’s free money for the business. They are nonrepayable.
2. When one qualifies for a government grant, it also comes as an avenue for the advertisement of the business because it is publicly endorsed by the scheme’s operator, which could be a section of the government body or a large corporate entity.
3. They are widely available.

Disadvantages of Government Grants

1. The application process is difficult. It is not easy to draft a convincing grant proposal that qualifies the entrepreneur’s project. One may indeed have a good plan, but if they do not apply properly and professionally, they will never get the grant. One must research and have the technological know-how, to present a convincing grant proposal.
2. The time and effort that one must invest in the tedious application process and other rules and requirements that come with the grant award are similarly taxing and can be difficult for entrepreneurs to meet.
3. The entrepreneur’s goals must align with the grant schemes as the scheme may be intended to fund different aspects of the business.
4. Government grants come with strings attached, and an entrepreneur cannot change their initial plan. Again, one needs to track, prepare, and submit regular progress reports to the agency that gave it.
5. Most government grants are short-term and have an income limit. Should the project expenses exceed what has been given, the entrepreneur must find new funding sources. For this reason, one must use the grant efficiently.
6. And finally, government grants are very popular, and thus you will be facing a lot of completion from rival businesses.

Fact about Grants?

• They are not intended for startups.
• They are for entrepreneurial businesses that are innovating or contributing to a social cause.
• They are not immediate.

Types of Grants

1. Block grants
   This is money given for a fairly broad purpose with few strings attached.
2. Categorical grants
   This is money given for a specific purpose that comes with restrictions concerning how the money should be spent; they are in two forms: project grants and formula grants.
3. Earmark grants
   They are grants that are tied to the provision of certain spending programs by recipient governments.

Deciding Which Grant to Go For

• Check the eligibility requirements against what one’s entrepreneurship is all about and ask oneself if the project has what it takes to qualify.
• Know how to draft a grant-worthy proposal or know where to seek professional assistance.

Having someone with professional advice to seek guidance will deeply improve the chances of getting grant approvals. With over 12 years of experience in the financial sector, Paul Hype Page has the necessary knowledge with government and banks, to assist you in your grant application succession.

Investment Credit

Suitable for entrepreneurship, which has the potential to yield positive cash flows in a short time. This is a banking product specifically designed to provide funding for the purchase or development of new equipment or assets. The bank offers lower interest rates than other loans by claiming equipment or other assets as collaterals.

Line of credit, overdraft, or straight loan

When an entrepreneur needs credit for expenses to come, this is the way to go. It comes as a mix between a corporate credit card and a bank loan. It provides the entrepreneur with a predefined amount of money that they can draw from as they continue operating. One’s bank or overdraft facility provides them. It is called an overdraft or straight loan, depending on how one draws the credit.

Overdraft is when one draws the credit in large amounts. It comes with a little extra interest rate. A straight loan is when one draws the line of credit at once. It comes with a lower interest rate. In other words, a line of credit allows an entrepreneur to get that extra cash that he or she needs when they have some money in their bank account.

Understanding your needs will let you know which banks to look for. We are well connected in working with local banks such as HSBC Bank, Bank of China, ICBC Hong Kong. This allows us to provide you with the necessary assistance for grant and loan applications, should you require any professional advice.

Overdraft Replacement

This is a cost-effective short-term business funding that can do much than a traditional overdraft. It is also referred to as the revolving credit or alternative overdraft funding. Many lenders provide it, and it offers instant access to funds without the involvement of a bank account. It is good for an entrepreneur who wants to deal with temporary cash flow shortfalls. It can be secured or unsecured.

It provides a line of credit with a limit agreed when one applies based on one’s previous income. The facility will only mean a cost to the business when it is used, based on the amount one draws down, and the time one holds it. The advantage is that it can be repaid at any time, and there are no restrictions on how to use it.

Invoice Finance/Accounts Receivable Financing

This is a way in which businesses borrow money against the amounts due from customers. It helps businesses improve their cash flow, pay employees and suppliers, and reinvest in operations & growth earlier than when they would have had to wait until customers paid their balances in full.

In this arrangement, a business pays a percentage of the invoice amount to the lender as a fee for borrowing the money. Large customers usually buy in credit and they are given an invoice. Invoice financing maybe by invoice factoring or invoice discounting. With invoice factoring, the company sells its outstanding invoices to a lender, who may pay from 70% to 85% of the invoice’s worth all at once. It may be in the form of an asset or a loan.

Loans

Loans come in different forms. But one similar thing is that they are returned with an interest fee. With the recent Covid-19 recession, the Hong Kong government has set aside HK$50 billion (US$6.45 billion) as a guarantee for SME loans. These loans allow SMEs to sustain their cash flow with ease, as they can opt to only pay interests for up to a year.

However, there are many prerequisites to be met when applying for government loans. Seeking assistance from professional services such as Paul Hype Page will allow potential investors to maximize their chances of obtaining such loans.

Below are the different forms that loans come in:

• Installment loans
  They are paid back with equal monthly installments. Interest is calculated from the first date to the final date.
• Balloon loans.
  This type requires only the interest to be paid off during the life of the loan, with a final balloon payment of the principal due on the last day.
• Secured and unsecured business loans
  A secured loan requires collateral and generally has a lower interest rate than unsecured loans. It is related to the purpose of the loan. An unsecured loan on the order hand has no collateral pledged as a secondary payment source. The lender provides the entrepreneur with an unsecured loan because it considers him or her a low risk.
• Asset-Based Finance. 
  This is a loan made to a company that is secured with one of the company’s assets such as machinery, equipment, or inventory.