"Older Self-Employed Business Owners Also Have Many Debts"

Loan Proportion of Self-Employed in Their 60s Significantly Increased Compared to Pre-COVID
Choosing Entrepreneurship as Employment Becomes Difficult
Repayment Ability Declines, Raising Default Risk with Interest Rate Hikes

On the 4th, known as 'Ipchun,' which marks the beginning of spring according to the solar calendar, the streets of Myeongdong, Seoul, felt bleak. On this day, the government decided to extend the current social distancing measures, which allow private gatherings of up to six people and restrict business operations after 9 p.m., for two more weeks to slow the spread of the Omicron variant of COVID-19. Photo by Moon Honam munonam@

[Asia Economy Reporter Sim Nayoung] Since the COVID-19 pandemic, loans to elderly self-employed individuals have increased more than those to young and middle-aged groups. It is analyzed that the elderly have relatively lower ability to repay money compared to other age groups, raising the risk of loan defaults among them.

Kim Bong-geon (63), who lives in Jungnang-gu, Seoul, opened a twisted doughnut (Kkwabaegi) chain store in his neighborhood last November. After retiring in his 50s, he worked as an apartment security guard but lost his job due to younger people taking over. He decided, "Before I get any older, running my own business is the only answer." He said, "Despite the COVID-19 situation, Kkwabaegi is a snack and the operating hour restrictions did not affect it much, so I thought it wouldn't fail. I used my retirement money saved in my bank account and took out a bank loan to open the store."

The problem is that the unit price is too low, and Kkwabaegi shops that were once trendy are now closing one by one. Kim said, "The price for one piece is 500 won, and no matter how many I sell, after deducting material costs and rent, the remaining money is only about 50,000 won per day. Also, my body is very tired because of my age." He added, "The Kkwabaegi trend is fading, so I should have researched more before starting the business. Now, I am worried whether I should continue this business."

According to the ‘Proportion of Personal Business Loan Holders by Age Group’ compiled by NICE Information Service on the 9th, compared to the fourth quarter of 2019, just before the COVID-19 outbreak, the proportion of borrowers in their 60s among personal business loan holders increased significantly from 15.1% to 18.0% in the fourth quarter of 2021. Those in their 70s also slightly increased from 3.6% to 3.9%. In contrast, the 30s decreased from 16.3% to 14.9%, the 40s from 29.9% to 28.0%, and the 50s from 31.9% to 31.7%. Kim Young-il, head of the NICE Information Service Research Center, warned, "Risk monitoring for borrowers aged 60 and above should be strengthened," adding, "With future interest rate hikes, the risk of defaults among them may increase."

The reason for the increased loan proportion among operators in their 60s appears to be due to aging. Unlike the younger generation who can enter the job market, the elderly find it difficult to find other options besides starting a business. According to the Bank of Korea’s report on ‘Employment Status by Characteristics of Self-Employment after COVID-19,’ the number of self-employed individuals in their 60s increased by 4.1% from February 2020 to April 2021 compared to before COVID-19. This contrasts with a decrease of -5.4% for those in their 40s and 50s and -3.6% for those in their 30s. During the same period, population growth rates were 6.6% for those in their 60s, -0.6% for those in their 40s and 50s, and -2.1% for those in their 30s. The Bank of Korea explained, "As the retirement age group increased during the COVID-19 situation, many entered self-employment."

The Korea Institute of Finance stated, "As of December 2021, it is estimated that 16.7% of self-employed households with loans are running at a deficit, and their loans amount to 177 trillion won, accounting for 36.2% of the total debt of self-employed households." Financial experts emphasize the need for preemptive crisis response to prevent a sudden surge of potential defaults as COVID-19 support ends. The Presidential Transition Committee is promoting the establishment of a ‘Bad Bank,’ a special fund to manage non-performing loans and support debt restructuring.