Korea Federation of SMEs Temporarily Lowers Mutual Aid Fund Loan Interest Rate by 0.6 Percentage Points

[Asia Economy Reporter Moon Hyewon] The Korea Federation of SMEs announced on the 7th that it will temporarily reduce the loan interest rate of the SME Mutual Aid Fund (hereinafter referred to as the Mutual Aid Fund) by 0.6% percentage points to alleviate the financial burden on small and medium-sized enterprises (SMEs) and small business owners suffering severe management difficulties due to the novel coronavirus infection (COVID-19).

The interest rate discount will be applied not only to new loans for promissory note loans and short-term operating fund loans from the Mutual Aid Fund but also to the monthly loan interest payments of companies currently using loans until the end of this year.

The Mutual Aid Fund is an SME mutual aid system introduced in 1984 under the Framework Act on Small and Medium Enterprises and the Act on Cooperatives of Small and Medium Enterprises, and has supported a total of 10 trillion won worth of defaulted accounts receivable, promissory notes, and short-term operating fund loans over the past 35 years. 96% of the Mutual Aid Fund loans are operated mainly for small-scale SMEs with fewer than 50 regular employees, and especially, the loan ratio for medium- to low-credit rating borrowers reaches 68%, focusing on supporting small-scale SMEs that lack collateral capacity and suffer financial difficulties due to credit rating downgrades.

Park Yongman, head of the Mutual Aid Business Division at the Korea Federation of SMEs, said, “As the voices from the field demanding expanded liquidity support have surged due to the prolonged COVID-19 pandemic, government secondary financial support for small business owners (interest rate subsidies by commercial banks) should also be matched with government secondary subsidies for the Mutual Aid Fund system, which has 16,500 SME members.” He added, “If emergency management stabilization funds are provided at low interest rates by combining the advantage of the Mutual Aid Fund, which allows unsecured credit loans, with government secondary subsidies, it will play a timely financial support role in preventing SME and small business owner bankruptcies (closures) and overcoming the COVID-19 crisis.”