Loan Application Tips*

*Don't borrow casually and fall into the debt trap.

Why SME needs to obtain bank loan to run business?

Hong Kong SMEs often face financial pressure when operating their businesses. On the one hand, their suppliers do not provide long payment terms due to SMEs' short establishment years; on the other hand, their clients (especially the well-known corporations) usually require SMEs to provide 1 to 2 months payment terms; thus inducing a large cash burden on SMEs. Therefore, SMEs often need to obtain bank loans to release their cash flow pressure.

Why it is difficult for SME to obtain bank loan?

It is important to understand the banking system and application requirements before applying for a SME loan from any bank. In general, Account Managers and the Credit Department are operating independently in the bank. The Account Managers usually provide a positive response to SMEs in order to achieve sales target. However, the Credit Department will adopt another credit evaluation criteria after receiving all documents and company financial information. In many cases, application are rejected because of the incomplete information or failing to meet the bank's requirements.

Furthermore, the whole loan application process in banks are generally complicated and the financial requirements for SMEs are relatively high. Banks not only require SEMs to provide three-year financial statements, but also require them to have net profits for the past two years. If the establishment years of the SMEs are short and the company operations are not ideal, application would be easily turned down.

*Monthly flat rate is the monthly interest payment calculated based on the initial loan amount received by the borrower. It shows fixed interest payment paid by the borrower each month. Even part of the principal has been repaid, monthly interest amount is still fixed.

*Annual Percentage Rate (APR) is in reference to actual borrowing costs. It includes handling charge, administration fee, etc. which generated from the loan, and annualised them as actual interest expenses.

*Use monthly flat rate to calculate repayment amount of an instalment loan. Below is a common market practice:

Loan AmountHK$1,000,000
Monthly Flat Rate1% (APR 25%)
Loan Tenor2年 (24 months)
Monthly InstalmentHK$52,183
Penalty under early settlement
(Lock-In Period: 12 months)
If customer repays in full in the 6th month, he/she is still liable for the 6th to 12th month interest payments
Late Payment PenaltyFixed amount charges on each delayed payment

Unlike the common market practice, Asia One Credit provides true "Early Settlement without Penalty" solution based on customers' capital needs and industry natures. Referring to the above case, if the borrower fully repays in the 6th month, we will NOT charge any early settlement fee, serving our customers with true "pay-as-you-go" experience.

Which aspects will banks consider when assessing a loan application?

Banks usually request borrowers to provide company and shareholders' basic information, such as bank statements, asset proofs, existing company and shareholders' loan documents, etc.

Moreover, financial data of SMEs are often poorly managed. It is common that SMEs have no accountants or designated colleagues to manage company financial data and have no proper internal management accounts. To many SME business owners, they would rather appoint external accountants at the end of each financial year.

SMEs tend to underestimate their performances and profits for tax planning. In worse cases, their assets may not be clearly stated on the balance sheets.

Banks will consider various factors for loan applications, including SME's financial statuses, shareholders' or directors' experiences in the industry, current contracts, company history since establishment, etc. Without complete and clear records, applications will be rejected by banks easily.

Is the low interest rate in advertisements real?

People in general may not have a clear concept on the "interest rate" mentioned by money lenders or financial institutions. For instance, terms like "Monthly Flat Rate", "Annual Interest Rate", and "Actual Percentage Rate" are widely adopted and used concurrently. However, it is important to note that each term has its own definition. For example, annual interest rate is not calculated by simply multiplying "Monthly Flat Rate" by 12 months. Interest expense is calculated from "Monthly Interest Rate" is fixed, regardless of whether the principal has been repaid already.

Money lenders or financial institutions in the market often transform lending costs as "administration fee", "document fee", "handling charge", "solicitor charge", etc., to disguise the actual total charge on customers. Despite the interest rate seems low, after putting all fees into consideration, customers' total borrowing cost can be leaping high.

Therefore, Asia One Credit insists to present full repayment schedule to customer during face to face meeting, so customers can fully understand their obligated borrowing expenses.

What is the meaning of "Don't pay any intermediaries"?

In the past decade, people often have seen poor sales practices of intermediaries from the news. These intermediaries mainly approach financial institutions for their referring clients but charging high referral commission. Therefore, the Government has enacted regulation to regulate intermediaries. However, some intermediaries still use other methods to collect commission as they reckon that customers may be willing to pay more to obtain loans as soon as possible.

Asia One Credit is the reliable financial institution which you can trust. Our specialists will provide the most professional and suitable loan solutions for you and offer professional opinion on your cash flow management.

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