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The Government will relax two requirements of the Loan Guarantee Scheme for industries impacted by Severe Acute Respiratory Syndrome, namely restaurants, hotels, retail businesses, travel agents, tourist coach operators, cinemas and karaoke establishments.
"The relaxations, made after considering the views of the industries, the present market situation and the operation of the scheme so far, were approved by the Finance Committee of the Legislative Council today (May 30)," a Government spokesman said.
These proposals will take effect once administrative arrangements have been made by the 26 participating banks to accommodate the modifications. The application deadline is July 31.
"The present requirement of joint and several guarantees for the loan from shareholders holding 90% or more of the equity interest in the establishment will be reduced to 70%," he said.
The size of the loan will be capped at two times the sum of three months of salaries and rents or one of the following specified guarantee ceilings, whichever is lower:
--$1 million for restaurants and hotels (per business premises)
--$500,000 for travel agents and tourist coach operators (per business premises)
--$300,000 for retail businesses, cinemas and karaoke establishments (per business premises)
After paying staff salaries direct to employees' individual accounts, any funds remaining can be used to meet other operating expenses, such as rent.
"In the case of self-owned business premises, rents will be taken as ratable value per month," the spokesman added.
For applications that have already been approved, the borrowers will be allowed to borrow additional funds, provided the loans already approved have not yet reached the specified guarantee ceiling for that particular sector.
The above relaxations apply to all sectors under the scheme.
Explaining the need to relax the requirements, the spokesman said some restaurants with a large number of shareholders had been unable to apply for loans under the scheme because of the difficulties in securing personal guarantees from shareholders owning up to 90% percent of the equity interest of the business, as originally required.
"Some shareholders may be residing outside of Hong Kong; others may simply be reluctant to go for a personal guarantee. We consider these concerns justified. To overcome this hurdle but without compromising the overriding principle that personal guarantees should be obtained from a majority of shareholders, we will reduce the requirement for personal guarantees of shareholders," the spokesman said.
On the relaxation of the rules regarding use of funds, the spokesman noted that many small and medium-sized companies in these sectors relied heavily on business turnover for working capital. Many had difficulty meeting their daily operating expenses because of the sudden drop in business.
"Even if they can pay staff salaries, they still find it difficult to meet rental payments and other operating costs. Many proprietors have suggested that there should be greater flexibility with the use of the loan. At present, loans taken out under the scheme can only be used for payment of salaries, and the loan size is capped at three months of an applicant's salary payments or the specified guarantee ceilings, whichever is lower.
"An eligible establishment should be allowed to use the loan, after payment of salaries, for covering other operating costs," the spokesman said.
End/Friday, May 30, 2003
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