[Self-Employed Closure Report③] "To Stand Up Again, Ultimately 'Money'... Government Support Is Crucial"

Korea Credit Guarantee Foundation Central Association '2022 First Half Survey on Business Closure Status of Guaranteed Companies'
"Need for Re-Startup Fund Support" 82%
"Funds Secured through Credit Loans from Guarantee Institutions" 50%

On the 22nd, a business owner is updating the menu with increased prices at a restaurant in downtown Seoul, where self-employed individuals are struggling due to soaring inflation. Photo by Mun Ho-nam munonam@

[Asia Economy Reporters Yu Je-hoon and Shim Na-young] Cha Do-jin (41, pseudonym), who lives in Gwangju, has been going back and forth to real estate offices these days to open a waffle shop near a university, but he is struggling because he is short of about 30 to 40 million won needed for re-startup funds. Due to the impact of COVID-19, he closed the snack bar he had operated for three years last year, but with the easing of social distancing, he is preparing for re-startup. His loan limit at commercial banks is fully used, and although he consulted at a savings bank, the interest rates were at an unbearable level. Mr. Cha plans to visit the local Credit Guarantee Foundation and IBK Industrial Bank of Korea for consultation.

The Biggest Obstacle to Re-startup is Money: "Urgent Need for Re-startup Fund Support"

The biggest difficulty self-employed people who have closed their businesses point out when planning re-startup or business transformation is funding. This is because not only did they consume operating funds during the closure process, but debts they had drawn while running their stores are holding them back.

According to the ‘2022 First Half Survey on the Closure Status of Guaranteed Companies’ by the Korea Credit Guarantee Foundation Central Association (a telephone survey of 821 closed businesses, conducted from April 21 to May 18), closed self-employed people overwhelmingly cited ‘re-startup funds’ (82.2%) as the government support policy they need most for re-startup. ‘Provision of startup information such as business items’ (7.2%), ‘consulting support’ (4.1%), ‘re-startup education provision’ (3.4%), and ‘market information provision and simplification of startup procedures’ (1.6%) were all in single digits.

In a period of rising interest rates, policy funds that can be borrowed at low interest rates are desperately needed. When asked about funding methods for re-startup, 87.1% said they have executed or plan to execute loans. Specifically, ‘credit guarantee loans from guarantee institutions’ (50.1%) ranked highest, followed by ‘credit loans from first-tier financial institutions’ (16.6%), ‘government policy funds’ (13.4%), ‘borrowing from family and acquaintances’ (8.3%), and ‘loans from second-tier financial institutions’ (5.9%).

Regarding what closed self-employed people want from the government and local governments, ‘financial support for closed business owners’ (48.3%) was the highest. Other opinions included extension of loan maturity and grace periods (12.8%), reduction of taxes, interest rates, labor costs, and rent (12.6%), expansion and promotion of education necessary for recovery (8.7%), and relaxation of loan documents and qualification requirements (3.6%).

Government Invests 1 Trillion Won in Recovery Support: "Comprehensive Support Needed"

The government has decided to invest 1 trillion won in policy funds to help self-employed people recover. First, through the Korea Credit Guarantee Foundation, it will supply guarantees worth 220 billion won to companies preparing for re-startup or business transformation after closure. Through IBK Industrial Bank of Korea, a special program will be supplied worth 100 billion won to reduce loan interest rates by 1.2 percentage points for re-starters with closure experience (within 5 years after closure) to help early settlement. For companies that have suffered long-term sales and financial deterioration or debt adjustment, new funds will be provided within the scope of repayment ability (worth 680 billion won).

On the 12th, self-employed business owners affiliated with the Small Business Federation held a rally near the Presidential Office in Yongsan-gu, Seoul, urging the expansion of the criteria for loss compensation payments. Photo by Kang Jin-hyung aymsdream@

Lee Soo-jin, Senior Research Fellow at the Korea Institute of Finance, said, "Since the launch of the bridge guarantee in July last year, only 33.1% (198.4 billion won) of the supply target has been reached as of last month," adding, "The 1 trillion won support scale is sufficient at this point." The bridge guarantee is a system that allows small business owners who have received guarantee support from the Credit Guarantee Foundation to continue receiving financial support even if they close their business by converting business guarantees into personal guarantees and maintaining the guarantee, thereby minimizing the burden of lump-sum repayment when the small business owner closes the business.

Experts advise that to prevent small business owners and self-employed people who challenge recovery through re-startup or business transformation from falling back into failure, comprehensive support programs such as consulting should continue beyond financial support. Professor Lee Jung-hee of the Department of Economics at Chung-Ang University said, "Recovery support programs have been repeatedly promoted by previous administrations," adding, "If they fail repeatedly, recovery becomes practically difficult, so proactive re-startup education and consulting support should be provided together with financial support."