[Report] "Interest Rates Higher Than 1st Round, But..." First Day of Corona 2nd Round Loans, Counters Quiet

On the First Day of Small Business Loans at Banks
There Were Inquiries About Limit Increases
Contrasting with the First Round of Financial Support

On the 23rd, the second loan limit for small business owners struggling due to the COVID-19 crisis will be increased to 20 million won. Small business owners who have already received the first loan can also apply for additional loans. According to the Financial Services Commission, the government has expanded the support limit and scope through the 'Expansion and Reorganization of the Small Business Financial Support Program' to provide up to 20 million won in additional support to small business owners. The photo shows a small business owner receiving loan consultation at Shinhan Bank in Seoul on the same day. Photo by Moon Honam munonam@

[Asia Economy Reporters Kangwook Cho, Sunmi Park, Minyoung Kim] "I came out because the interest rate on the second loan for small business owners has decreased compared to the first time. I don't know how it will actually be, but since every day is urgent, I guess I have to take it for now."

At around 9:30 a.m. on the 23rd, self-employed person Kim Hyunjoong (alias, 47), whom we met at Bank A located on Sogong-ro, Jung-gu, Seoul, sighed and said this. Kim said, "This is all debt, but I am worried because the interest rate is higher than the first loan."

At a similar time, Lee Jinkyung (alias), in her 60s, whom we met at Bank B Dong-Yeouido branch, said, "I took the first loan, but it was just like putting a band-aid on a frozen foot," adding, "I don't know when the COVID-19 situation will end, but as the debt grows and I keep juggling it here and there, I don't know if I will be able to get this second loan due to my credit rating."

Bank counters in major commercial districts in Seoul are quiet... only steady phone inquiries

On the first day of the implementation of the supplementary measures for the 'Second Financial Support Loan for Small Business Owners' due to the impact of COVID-19, bank counters in major commercial districts in Seoul were quieter than expected. Although each bank branch opened dedicated counters for loans to small business owners affected by COVID-19, few people visited these counters. This contrasts sharply with the first financial support when each bank branch was crowded. It is partly because it is the first day and publicity is still insufficient, and also because it is the morning hours, but there is also an interpretation that the lower loan limits and higher interest rates compared to the first time are the reasons.

A representative from Bank C Dong-Yeouido branch said, "Since it is the first day of the loan limit increase, it seems that customers are not flocking," but added, "Some customers came directly yesterday to inquire about the required loan documents, but the atmosphere is clearly different from the first loan."

However, phone inquiries for loan consultations were steadily coming in. A representative from Bank D said, "Many customers who previously applied for 10 million won in the second loan are calling to ask if they can increase their limit to 20 million won," adding, "There are also steady inquiries about withholding existing loan approvals and reapplying."

A bank counter is seen to be quiet./Photo by Hyunmin Kim kimhyun81@

Second financial support for small business owners neglected... questions about effectiveness despite increased limits and lowered interest rates

The biggest change in the 'Second Small Business Financial Support Program Version 2.0' launched from this day is that the loan limit has increased from the existing 10 million won to 20 million won. Even borrowers who have already received 10 million won through the second small business loan that started in May can apply for an additional 10 million won. Borrowers who received the first small business loan can also use the second loan program concurrently. However, only small business owners who used the first loan within 30 million won can apply for the second loan. If a small business owner with a credit rating of 1 to 3 who has never used small business loans including the first and second loans applies, they can apply for 30 million won in market bank interest subsidy loans and 20 million won in this second small business loan at once, receiving a total of 50 million won.

The background for the release of 'Version 2.0' is that the second financial support program, which started in May, was thoroughly neglected by small business owners. Not only was the loan support amount low, but the interest rate was more than twice as high as the 1.5% of the first loan. As a result, 9.34 trillion won out of the 10 trillion won limit remained unused.

The interest rate of this supplementary measure has decreased compared to the launch time. This is because market banks lowered the interest rates reflecting the purpose of supporting small business owners and market interest rates. The interest rates of the five major banks dropped from 3.52-4.99% at the launch in May to 2.40-4.99% as of the 8th. However, unless the interest rate of the second loan is drastically lowered to the 1% level of the first loan, its effectiveness is expected to be limited. In the ongoing COVID-19 situation, the high credit rating requirement is an obstacle, and loans rather than support inevitably remain a burden.

Calls for fundamental measures such as rent adjustment

Sung Jaeho (alias, 39), who runs a small pub in Seongnam, Gyeonggi Province, said, "If the loan is extended, it eventually has to be repaid, but there is no guarantee that the business will normalize after COVID-19, so it feels bleak," adding, "Rather, fundamental measures should be established, such as some practical support like rent adjustment or at least tax cuts for business owners."