Hong Kong,

Financial Support for Hong Kong SMEs Hampered by Burdensome Loan Application Processes – TransUnion/EY-Parthenon Study

  • 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[1], 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%).

These challenges have made it more difficult for SMEs to access credit at a time when they need it the most, especially new-to-credit businesses. For lenders, the challenges mean missed opportunities and slower business growth in the SME segment.

Traditional Banks Remain First Port of Call

Traditional banks remain the key source of financing, with almost all SMEs (95%) obtaining their financing from them. Bank loans are the most sought-after financial product (37%), with private debt (20%) and credit cards (18%) also used regularly.

Despite their strong financing needs, many SMEs struggled to obtain the same amount of financing as they did before the pandemic due to challenges in meeting credit requirements. In fact, 40% saw a decrease in their financing amount compared to pre-pandemic times, with a significant shift from larger to smaller loans. During the past year, 31% took out a small loan of below HK$500,000, versus 21% before the pandemic.

“The pandemic has been both a disruptor and a digital catalyst, and there is no better time for banks and money lenders alike to build their digital capacity so they can create more SME-friendly processes,” said Cheung. “Lenders now have an opportunity to rethink and redesign their current processes and assessment frameworks with SMEs’ evolving needs in mind. By optimizing processes, data analytics and digital capabilities, lenders can set themselves up to better serve the rapidly growing SME financing market.”

TransUnion offers a range of digital solutions to help banks and money lenders improve their financing processes, from onboarding and credit assessment to credit monitoring, and to better manage credit and promote financial inclusion. In particular, the TransUnion SME KYB solution is designed to enable faster onboarding processes, while also improving accuracy with access to official data sources. Credit risk management is supported by the TransUnion SME Score which leverages both companies’ and individuals’ credit data to facilitate better credit analysis and decisioning.

About the Future of SME Financing Report

The Future of SME Financing study was prepared jointly by EY-Parthenon and TransUnion. The research comprised of two surveys covering 100 SMEs and 200 banks and money lenders in Hong Kong conducted in July 2022 to examine how SMEs’ financing needs could be better served. Additional interviews with subject matter experts were used to validate the findings and gain further insights into the specific challenges faced by banks and money lenders along with their current adoption of digital solutions. The Future of SME Financing report is available for download here.



[1] Hong Kong Trade and Industry Department, August 2022