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Treasury & Capital Markets
Why many SMEs are unhappy in Hong Kong
One-in-five small and medium-sized businesses (SMEs) in Hong Kong are dissatisfied with the availability of finance and 57% of SMEs rate highly the importance of their main financial services provider in understanding how their business works.
The Asset 25 Nov 2016
One-in-five small and medium-sized businesses (SMEs) in Hong Kong are dissatisfied with the availability of finance and 57% of SMEs rate highly the importance of their main financial services provider in understanding how their business works.
The research led by financial services firm Bibby Financial finds that Hong Kong SMEs are most bearish on the economies and sales performance, compared with their counterparts in other regions covered in the survey. The company surveyed 200 SMEs in each market it operates, including Germany, USA, UK, Ireland, Poland and Hong Kong. The findings are based on a total of 1,203 surveys and 1,200 telephone interviews. 
Overall, only 15% of respondents describe the Hong Kong economy as doing well, with almost half (48%) saying it was performing poorly – more than double the average. Hong Kong SMEs were also least bullish on sales over the past 12 months, with 45% of them seeing a sales decline. In terms of sales expectations in the next 12 months, just a quarter of Hong Kong SMEs expect growth and 35% expect sales to decline.
Despite flagging business confidence, Hong Kong SMEs remain willing to invest in their businesses, with 89% of them stating that they intended to do so in 2016.  Sales and marketing promotion (40%), training and development for existing staff (22%), recruitment of new staff (20%) were cited as the top areas of investment.
The research also revealed that Hong Kong SMEs do not see enough financial support from the market, especially for those with a smaller scale of operations. Only 27% of SMEs in Hong Kong rate the availability of financing in their sector as excellent or good, the lowest among six regions covered by this research. Additionally, 21% of Hong Kong SMEs rate the availability of trade financing as poor, while 36% of SMEs with over 50 employees each rate the availability of financing favourably, in contrast to 16% of those with nine employees or fewer, indicating larger SMEs see greater access to financing.
Overall, only 20% of SMEs are using external financing sources such as bank loans, leasing, private equity and crowd funding. The bulk of funding for most Hong Kong SMEs are from the companies’ retained profits, which account for 53%, followed by savings (10%) and bank loans (8%). Bibby Financial analysts say that the most common avenue for SMEs to get bank loans is to pledge property or cash deposits as collateral. This explains why only a small proportion of SMEs get financed by banks or externally, as most of them lack excess assets for collateral purposes. Moreover,the research found thatreceivables financing accounts for just 2% of funding in Hong Kong, compared with 13% in the US. Bibby Financial analysts believe the significant gap may stem from Hong Kong SMEs’ lower awareness of factoring and similar trade financing tools, which are not yet common in the market where there is considerable room for growth.
“SMEs are the key drivers of the Hong Kong economy as they make up 98% of all businesses, and our research shows they see a decline in the business environment,” says Jackey Chu, managing director of Bibby Financial Services (Asia) Ltd, the Hong Kong arm of Bibby Financial Services Group. “Our findings also show that the bigger the companies in terms of turnover and headcount, the more confident they are in their business outlook, compared with their smaller counterparts, particularly in their access to financing. This underscores the challenges and struggles smaller Hong Kong SMEs face, especially in the face of economic uncertainties or slowdowns.”
“Hong Kong SMEs spend an average of 37 days waiting to receive payment, the second highest among the six cities covered in this survey. This signals the cash flow pressure they face. We see a resounding need for financing services in the SME market, in the absence of adequate financing alternatives in the market. The problem is that some SMEs are not aware of other avenues for financing aside from the traditional route of getting a facility from a bank. There are alternatives for such companies to access funding, including factoring and PO finance services, which do not require any collateral,” Chu adds. “Moreover, understanding the business of SMEs is important as the research found that 57% of the SMEs say it is crucial their finance services provider has a sound and thorough understanding of their business, while only 36% of the respondents feel their financial institution knows their business.”
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