Hong Kong SME security guide · Free security checklist
SME collateral and guarantees for Hong Kong lenders
Security answers a different question from cash flow: if the business cannot repay, what can the lender recover? The answer depends on what the asset is worth, how quickly it can be sold, who else has a claim on it and, for a guarantee, whether the guarantor can pay.
Core definitions
Put similar concepts in the right place
Each component solves a different problem. Complete lending operations depend on clear data and workflow hand-offs.
| Item | What it does in practice |
|---|---|
| 01Property | Land, buildings and units. Value depends on the valuation, its date and any prior charge on the property. |
| 02Equipment and stock | Machinery, vehicles and inventory. They lose value faster and are harder to sell, so they carry larger haircuts. |
| 03Receivables and deposits | Money owed to the borrower and cash held. Their value depends on who owes it and whether it can be assigned or held. |
| 04Personal guarantee | A promise by a person, often a director or shareholder, to pay. Its value depends on their wealth and on whether it can be enforced. |
| 05Corporate guarantee | A promise by a related company. Its value depends on that company’s own position, which may depend on the borrower. |
| 06Haircut and loan-to-value | The haircut reduces an asset’s value to what the lender could expect to recover. Loan-to-value compares the loan with that figure. |
Background
What security is for
Security is the second source of repayment. This section explains how it fits beside cash flow, and what makes a value reliable.
Security does not replace repayment capacity
The first source of repayment is the borrower’s cash flow. Security is the second: what the lender can recover if cash flow fails. A loan that depends on selling the security to be repaid is a different loan from one repaid from trading.
That is why a credit file shows both. A strong asset does not fix a weak business, and a strong business does not depend on the asset.
Why a value needs a basis
Valuations come in several kinds. A market value, a forced-sale value and an insurance value are different numbers for the same asset. The file should say which one it holds, because the haircut applied to each is different.
Who else has a claim
An asset that already carries a charge is worth less to a second lender. Recording the prior charge, with its amount, turns an optimistic value into a realistic one.
Guarantees and related parties
Guarantors are often the owners. If the borrower fails, the guarantor’s own wealth may be tied up in the same business. Recording the relationship shows how much independent cover a guarantee really gives.
Book an SME lending walkthrough
A working session on how your security is valued and recorded.
Workflow
Six steps to record security properly
- 01
Identify the asset or guarantor
Record what it is, who owns it and how it relates to the borrower.
- 02
Obtain the value and its basis
Keep the valuation, its date and who produced it.
- 03
Check what is already charged
Search the Companies Registry for charges registered against a company, and the Land Registry for property, so prior claims are known.
- 04
Apply the haircut
Reduce the value according to the asset type and the lender’s policy.
- 05
Calculate recoverable value and loan-to-value
Compare the loan with what could be recovered.
- 06
Review the value on a schedule
Set a date to revalue, because values age.
Printable worksheet
Free: 12-point security and guarantee checklist
Use it on a recent secured SME file. This is an operational self-assessment, not legal or valuation advice.
Practical evaluation
Three things lenders check first
A guarantee is only as good as the guarantor
A guarantee earns credit for being enforceable and for the guarantor’s capacity to pay. A guarantee from someone with no assets adds little.
A value without a date is not a value
Property and equipment values change. A valuation from three years ago says little about today.
Prior charges reduce what is left
If another lender already has a charge over the asset, the amount available to your loan is the value less that claim.
Frequently asked questions
Quick answers
What is a haircut?
A haircut is a percentage deducted from an asset’s value to allow for the fall in price if it has to be sold quickly. Riskier or less liquid assets carry larger haircuts.
What is loan-to-value?
Loan-to-value, or LTV, is the loan divided by the value of the security. A lower figure means more cover. Lenders often calculate it on the haircut value as well as the full value.
How do I check charges over a company?
Charges are registered with the Registrar of Companies, and a certified copy of each charge instrument is available for public inspection. The Companies Ordinance sets one month for delivering the charge instrument and particulars to the Registrar.
How do I check property?
The Land Registry’s IRIS online service has a Search Land Register option.
Does Covenant Desk record collateral and guarantees?
Yes. Covenant Desk records collateral and guarantees with haircuts, recoverable value, loan-to-value and an expected-loss estimate. The haircut parameters are set with your credit team.
Primary sources
Official sources and editorial note
This guide reflects official material available on the review date. Requirements can change; each institution should check the latest licence conditions and obtain legal or compliance advice. This page is not legal advice. Read our editorial and corrections policy.
Next step
See security recorded with its haircut and loan-to-value.
Talk to us about how your collateral and guarantees are recorded, or try the Covenant Desk platform that records them.
Covenant Desk is lending operations software. It does not provide loans, issue credit reports or replace the lender’s final credit decision.