The Hong Kong government has issued a consultation paper proposing the establishment of a Film Guarantee Fund to help local companies obtain bank loans for film production.

The paper suggests that $6.4m (HK$50m) of the existing $12.8m (HK$100m) Film Development Fund should be used to guarantee loans to filmmakers from banks and other participating lending institutions. The scheme would initially run for two years on a revolving basis with loan guarantees discharged by the banks being ploughed back into the fund for future applications.

Only Hong Kong production companies, or individual producers and directors, that have produced at least three theatrical films in the past five years are eligible for the scheme. Production companies have to provide 30% of the total budget of each qualifying project and have a completion bond in place. To qualify, projects should not cost more than $960,000 (HK$7.5m) and at least half the cast and crew should be Hong Kong residents.

The fund would then guarantee 50% of the loan provided by the bank, or a maximum of $337,000 (HK$2.625m).

The scheme was recently discussed at a one-day film industry forum - organised by the Federation of Hong Kong Film Workers - which was called in response to a sharp downturn in both production levels and box office for domestic films. Traditional sources of finance - including individual investors and pre-sales to South-East Asian territories - are drying up in recession-blighted Hong Kong. The territory is also facing stiff competition from neighbouring territories such as Thailand and Korea.

The public consultation period ends November 6 after which the paper will be submitted to Hong Kong's Legislative Council.