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A comprehensive guide to financing options for businesses

The CardUp Team Sep 29, 2020 1:03:00 PM
The Comprehensive Guide to Financing Options for Businesses

Roughly 80% of small businesses fail within the first year, and a primary reason is lack of sufficient capital. Small and medium enterprises (SMEs) are historically vulnerable, many only one disaster away from closing their doors forever. Because their cash reserves are not as deep as enterprise-sized companies, SMEs often don’t have the financial means to weather a storm of any sort. Cash flow issues, in addition to the tremendous stress of financial management in an unstable economy, can lead to many challenges for some smaller businesses. However, there are ways to get through these temporary financial challenges.

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Loan Options

There are many loan options available in Hong Kong for small and medium-sized businesses to get the cash they need to succeed. First among these are traditional bank loans such as business loans from BOC. With a variety of short and long-term loan options, bank loans can help your business stay liquid and accelerate growth. These commercial loans are typically available to established businesses with a track record of success.

Hong Kong-based businesses also have the opportunity to take advantage of many government-backed loan programs. Loans through the HSBC SME Loan Guarantee Scheme, for instance, are specifically designed to help newly started SMEs build up business installations and get essential equipments, or get sufficient working capitals to satisfy business needs. These loans can have terms of up to five years at attractive interest rates, tailored for small businesses like yourselves.

Unfortunately, new SMEs are not always successful in getting approved for such financing solutions, due to a variety of reasons such as lack of financial history and lower credit scores of these companies. As a result, acquiring loans from banks can be a challenge, especially with uncertain revenue. However, for SMEs without prime credit scores or without steady revenue, bridge loans from smaller lenders are still an option. Take online lending platform MoneySQ as an example, it offers a non-traditional and easier way to get support for your business growth and maximise cash flow.  

There are also business loans such as SME Financing Guarantee Scheme, which is supported by HKMC Insurance Limited, that helps businesses enhance their productivity and competitiveness in the market, with up to seven years of repayment periods and HK$18 million loan amount.

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Government Funds

The government offers a number of funding schemes designed to assist SMEs with funding available for many functions. The types of available grants range from capability upgrading initiatives supporting process improvement and product development, to wage support encouraging employers to hire eligible Hong Kong citizens. Current programs provide funds for a variety of specific industries to expand their workforce, adopt new technologies, or market their products and services overseas.

These funding schemes are available to Hong Kong-based and registered SMEs with the desire and potential to grow both locally and globally. Grants, unlike loans, do not need to be repaid. They are an expression of the government’s initiative to make Hong Kong a trusted force in the global marketplace, as well as to support the growth, capability upgrades and innovation of companies. If you are looking for free business information and consultation, make sure to check out the government’s Support and Consultation Centre for SMEs (SUCCESS) as well!

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Leveraging Overdrafts

Perhaps the simplest method of ensuring emergency funding is available is the arranged overdraft. Typically, this involves making arrangements with your bank to allow overdrafts on your current account up to a specific amount. With flexible repayment schedules, you only pay interest on the amount you use, and the funds are always available when you need them.

Most major banks offer some form of arranged overdrafts. A source of quick stand-by funds, overdrafts are typically available to all businesses incorporated in Hong Kong. Overdrafts, however, are costly with high interest charges based on the amount used, calculated on a daily basis. In addition, the application process is quite tedious as the bank requires several types of documents such as bank statements, financial statements, even at times, the business plan of the company.

Acquiring Capital on Crowdfunding Platforms

Crowdfunding sites, or P2P lending platforms, have become a popular option for acquiring the capital needed for growth and expansion. The term crowdfunding refers to internet-mediated registries where a project or venture can be funded by raising small amounts of money from a large number of people via the Internet.

In Hong Kong, crowdfunding is still an unpopular choice while there are various crowdfunding platforms designated for different types of business, such as Sleek, Angel Investment Network, Sparkwise and more. These platforms allows SMEs to raise funds from individual investors who, in turn, earn money from their investment through interest on the loan. While costs might be slightly higher, they are still attractive, compared to more traditional methods of funding such as bank loans.

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Invoice Factoring Options

Late payments from customers is a key challenge for SMEs in Hong Kong. $13.3 billion worth of invoices were paid to SMEs late in 2018. This causes problems as the needed funds to run the business aren’t available until customers pay their bill. Often, unpaid invoices represent an amount that could keep your business liquid if only they were paid. At times like this, it may be worth exploring invoice factoring services like Velotrade. Invoice factoring services offer loans against the unpaid balance of outstanding invoices so that you have the cash you need immediately.

Most services apply a single, transparent fee rather than imposing interest on the loan and they get paid when you get paid. With invoice factoring, you don’t have to wait for that big invoice to come in to get the funds you need to keep your business running.

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Equity Financing

Equity financing is the process of raising capital through the sale of shares in an enterprise. Equity financing essentially refers to the sale of an ownership interest to raise funds for business purposes. Unlike crowdfunding, equity financing is not a loan. Investors purchase a share of the business and thus a share of the profits going forward.

This type of financing is usually reserved for larger enterprises listed on various stock exchanges, but these days equity financing is available for SMEs and startups as well. AngelHub, the first and only Hong Kong Securities and Futures Commission(SFC) approved equity crowdfunding platform, allows high-potential startups to get access to investors, in order to scale and grow to IPO/exit through strategic partnerships.

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Credit Cards as Cash

Finally, there is a way to bridge the gap between cash flow and revenue in a quick and safe fashion, without relying on an unfamiliar lender or selling equity in your business. CardUp offers you an alternative to short-term bridge loans by allowing you to use the credit card you already have to pay your suppliers – even if they don’t accept credit cards. Any payment you make via cash, cheque or bank transfer (e.g. rent, payroll, taxes, supplier payments, etc) can be charged to your credit card, with no need for your recipient to be onboarded.

This means you can use your existing credit cards to extend your business payables by up to almost 2 months with zero interest. This allows you to free up your cash on hand for other purposes, such as acquiring more products or for growing the business. You will also be paying your bills on time or even earlier, taking advantage of early-payment discounts from your suppliers. Better yet, you can earn rewards and points on your credit cards for business spend which you are already making.


Anyone dealing with cash flow issues in SMEs understands the tremendous stress they place on your business’s ability to grow and increase revenue. Often these cash flow issues are no fault of yours, and are instead due to late or slow payment by your customers. Whatever the reason, if you’re in charge of the financial health of a Hong Kong-based business, there are emergency lending options that can work for you. Whether you want to make it simple and rely on your credit cards to extend the cash available to you, or go through the lengthier process of acquiring an emergency loan, you have options to get the cash you need to bridge your financing needs.

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