Financial Support for Hong Kong SMEs hampered by burdensome loan application processes
- More SMEs (61%) sought external financing in the past year to support day-to-day operations and business growth
- Almost three quarters (73%) of SMEs identified lengthy loan application processes as a major pain point in their financing journey
- Lenders should expedite the lending journey using end-to-end digital solutions to support Hong Kong’s economic recovery in which SMEs play a pivotal role
TransUnion (NYSE: TRU), a global information and insights company, and EY-Parthenon, one of the largest global strategy consultancy firms, have released the Future of SME Financing report, which reveals new research highlighting the challenges faced by Hong Kong’s small and medium sized enterprises (SMEs) in financing and access to credit. The report shows that SMEs needed to access external financing to endure the pandemic, but they were hampered in this by laborious loan application processes.
In Hong Kong, 98% of all businesses are SMEs, which employ 45% of the workforce, making them a key contributor to the city’s economic recovery. The need to support and finance these small businesses has never been more vital.
“As Hong Kong’s economy continues to emerge from the pandemic disruptions, the SME sector will play a pivotal role in driving the recovery,” said Eric Cheung, senior director and head of solution consulting of TransUnion Asia Pacific. “The sector’s growth potential cannot be understated as the demand for financing to support their operations and ambitions is greater than ever. That makes it critical for the financial services sector to understand their evolving needs so we can better support those small businesses that underpin Hong Kong’s economy.”
Journey to Financial Support is Encumbered by Obstacles
Among surveyed SMEs, almost two-thirds (61%) required financial support over the past year. In particular, SMEs sought financing to cover day-to-day operations, including working capital (25%) and paying staff salaries (23%), while some were to tackle changing market conditions under the prolonged pandemic through business expansion (18%) and changing business model (17%).
The majority of SMEs (73%) said a prolonged and complex application process is the major pain point in their financing journey. Specifically, 21% found it difficult to meet the collateral requirements attached to the loan. Other challenges include a perceived lack of transparency in the approval process (18%), the large amount of required documents (17%), and the slow application process (17%).
The research found that these challenges are tied to financial institutions’ highly manual processes and legacy technology. Financing professionals interviewed said some of the greatest barriers to processing SME loan applications are the lack of SME-specific data to evaluate risk (30%), the lack of SME-specific risk tools to evaluate credit worthiness (29%), along with operating inefficiency in collecting documents from SMEs (29%).