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SMEs: Taking a step up with Budget 2019-2020

Small and medium enterprises (SMEs) in Hong Kong perennially face a host of financial challenges. For one, the high costs of operations, notably rental costs, are often an impediment to profitability. It could be so forbidding that some SMEs avoid having business addresses altogether or turn increasingly to co-working spaces to save costs. Also due to the small scale of their operations, SMEs lack the collaterals to obtain much needed loans to expand or win business. Those doing business overseas might be exposed to global economic forces causing volatile foreign exchange rates and unpredictable revenue and costs.


Given the significance of the SME sector and the myriad challenges they faced, supporting SMEs is a mainstay of government policy. In February, against a backdrop of slowing global economic growth, the Hong Kong government announced its 2019-2020 budget. An objective of the Budget is to provide support for local enterprises to tide over the uncertain economic and trade environment in the year going forward.


One of the fiscal measures includes the waiver of business registration fees for 2019-2020 which is expected to benefit as many as 1.4 million business operators. The waiver would go some way in relieving operating costs especially for small and medium enterprises, and lowering entry costs for entrepreneurs considering to startup in Hong Kong.


The government is also helping enterprises to stay on the competitive edge with enhancements to its existing funding program in important areas of business, namely technology, international expansion and cashflow management.


A notable enhancement is the doubling of funding ceiling to $400,000 under the Technology Voucher Program for each enterprise. First launched in 2016, the program seeks to help small and medium enterprises make use of technology to enhance their operational efficiency and productivity.


Further, the government also made a series of enhancements to the Dedicated Fund on Branding, Upgrading and Domestic Sales (BUD Fund). Notable measures include an additional $1 billion injection into the fund, extension of coverage to all markets with whom Hong Kong has a free trade agreement (FTA), and higher funding ceiling for enterprises.


Now, Hong Kong companies looking to undertake branding, product or sales development in Mainland China, ASEAN and beyond could seek larger matching funds from the government. Most recently, the government concluded FTA negotiations with Australia and Maldives.


Another measure announced is the extension of application period to June 30, 2020 for special concessionary measures under the SME Financing Guarantee Scheme. The scheme was launched in 2011 to help SMEs and non-listed enterprises obtain financing by providing financial guarantees. In November last year, special concessions such as lower guarantee fees and longer maximum guarantee period were implemented. SMEs facing liquidity challenges now have a longer window period to apply for the measures.

Developing new opportunities through innovation and technology


Innovation and Technology (I&T) is also a major policy area for the Hong Kong government. In his Budget 2019-2020 speech, Financial Secretary Paul Chan reported at length on the work the government has been conducting to develop innovation and technology in Hong Kong. Key areas of development revolve around promoting research activities, the building of R&D infrastructure and talent pool.


Just last year, $10 billion was injected into the Innovation and Technology Fund (ITF) to support research and development activities. Administered by the Innovation and Technology Commission, the ITF provides funding to support a myriad of activities ranging from enterprise R&D to startup prototype production. Billions of dollars have also gone into fostering research in areas such as artificial intelligence (AI), robotics at the Science Park, as well as R&D commercialization by universities and research centers.


To support research activities, expansion works are ongoing at the Hong Kong Science Park and Cyberport. The so-called Science Park New Extension Stage 1 will add 74,000 square meters of floor space for laboratories and work space for healthcare, AI and robotics research when completed this year. The Cyberport, with an ecosystem of 1,200 companies and start-ups, will get an additional earmark of $5.5 billion for its expansion. This will provide 66,000 square meters of floor space for offices spaces, conference venues and data service platforms.


To ensure a steady pipeline of research professionals, the government has made the funding terms of its Researcher Program more competitive. It is also helping to build more housing for researchers. Separately the government will deploy $500 million to implement IT Innovation Labs in secondary schools over the next three years.


Another pillar under the government’s I&T policy is promoting reindustrialization. The objective is to help current manufacturers develop high-end, high value-added production capabilities and reduce Hong Kong’s reliance on service industries. Plans by the Innovative and Technology Bureau are in place to seek funding to help manufacturers set up high end production lines in Hong Kong.

American Express as a trusted, alternative financing partner


Government funding schemes provide a much needed source of financing for SMEs, especially when banks tighten their belts during an economic slowdown, according to David Caton, Director of SME Business Development, Global Commercial Services at American Express. However, he pointed out that SMEs with more urgent need of funds should get a handle on the length of time and the paper work which could be required to apply for government funding.


Depending on their specific circumstances, some SMEs may turn to alternative financing sources. “American Express’s payment solution is always a good alternative source of fund for SMEs while leveraging governmental funds,” says Caton. “It’s faster and more convenient way to fund operations with our solutions which come with up to 51 credit free days . It helps SMEs access short term financial outlay to cover their cash flow gaps."


Apart from financing liquidity, working capital and cash flow needs, American Express also provides access to other potential benefits such as extended payment terms and extended payment periods for buyers, while also guaranteeing accelerated payment for suppliers. Optimizing payment periods in this way frees up much needed cash and facilitates better working relationships with suppliers and customers. Put another way, using Amex corporate payment solution allows cash to be available sooner and for longer, giving SMEs the control over their payments needed to achieve efficiencies.

American Express invites you to learn more about how our SME cash flow solution can help your business save time and money.

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