[Self-Employed Closure Report①] "Closing with 80 Million Won Debt and Spending 20 Million Won"

[Self-Employed Business Closure Report①]
Credit Guarantee Foundation Central Association '2022 First Half Year Survey on Business Closures of Guaranteed Companies'

Average Debt Amount at Closure: 84.97 Million KRW
Average Closure Costs: 19.89 Million KRW

Photo by Getty Images Bank

[Asia Economy Reporters Sim Nayoung, Yoo Jehun, Song Seungseop] "I am handing in my resignation as a self-employed business owner." Kim Youngwoo (32, pseudonym), who runs a spicy braised monkfish (agujjim) restaurant in Daegu, decided to close his store after using up the remaining packaging containers this month. He started the business with money he saved from part-time jobs in his twenties and bank loans. Initially, he had a decent 30-pyeong (approximately 99 square meters) store with a dining area, but when COVID-19 hit and business declined, he moved to a 6-pyeong (approximately 20 square meters) place focusing solely on delivery. Within five months of relocating, even the remaining deposit was used up to maintain the store, leaving him with a debt of 60 million KRW.

Kim said, "They say young people endure hardships willingly, so I ran the business for four years, but sales kept dropping, the economy worsened, and over time it felt like I was sinking into a hellish pit. After selling my car as a last resort, I got 13 million KRW, but after paying off overdue ingredient costs, utilities, and rent, I only have 2 million KRW left in my hands," he lamented.

Small Business Owners Struggling to Close
"Poor Profitability Leads to Closure" 73.8% "Affected by COVID-19" 93.9%

In an era with 6.57 million self-employed people domestically, one out of every eight Koreans is self-employed. Due to the low entry barriers, closures are also frequent, which is a common rule in this sector. Debts ranging from tens of millions to hundreds of millions of KRW are an unavoidable burden. What circumstances lead self-employed business owners to decide to close their doors? Can they rise again?

According to the '2022 First Half Closure Status Survey of Guaranteed Companies' by the Korea Credit Guarantee Fund Central Association (telephone survey of 821 closed businesses conducted from April 21 to May 18), the average debt amount at the time of closure for self-employed business owners was 84.97 million KRW. The most common debt range was between 50 million and 70 million KRW (22.7%), followed by 100 million to 200 million KRW (20.7%). Debts exceeding 200 million KRW accounted for 9.4%.

The primary reason for closure was "poor sales and profitability" (73.8%). As expected, 93.3% of respondents said they were "affected by COVID-19." The longest operating period among closed businesses was "over 10 years" (28.3%). This suggests that even self-employed owners with relatively long business histories could not withstand the impact of COVID-19 restrictions on operating hours and eventually collapsed. Regarding business types, independent stores (74.1%) outnumbered franchise stores (25.9%), indicating that those who entered self-employment without headquarters support or know-how faced greater management difficulties.

Demolition Costs and Restoration Burdens Added
Top Difficulty: Recovering Key Money

The door of a closed store in Myeongdong, Seoul is firmly locked. The padlock is rusted, showing how much time has passed. We hope the COVID-19 situation settles soon so that small business owners and self-employed individuals can smile brightly again. /Photo by Moon Honam munonam@

Even if they decide to quit business, without money, they cannot close down. Various taxes, rent, ingredient costs, and demolition fees costing tens of thousands of KRW per pyeong add to the burden of closure. As a result, the average closure cost for self-employed business owners was 19.89 million KRW. This is why 60.8% of respondents cited "support for closure costs such as restoration expenses" as the area where they most need help during the closure process.

The reality for those closing their businesses is that they often have to pack up without properly receiving the money owed to them. The top difficulty during closure was "recovering key money" (31.4%). Park Kyungjin (48, pseudonym), who put up a pork belly restaurant in Haeundae, Busan, for sale, initially tried to recover the full key money of 25 million KRW he paid when starting the business. However, after three months without any buyer, he drastically reduced the key money to 13 million KRW. Park sighed, "I am rushing to close and handing over the store at a 'crazy key money' price. Even if I sell the equipment secondhand, I could get about 6 million KRW, but with rising prices and a tough economy, no one wants to buy the store."