[Indebted Self-Employed] Can Those Pushed to the Limit Make a Fresh Start?

[Asia Economy Reporter Song Hwajeong] Even before the scars of COVID-19 have faded, the high interest rates, high inflation, and high exchange rates are making the economy difficult for ordinary people, increasing the number of self-employed and small business owners pushed to their limits. Loans taken out to survive the COVID-19 period have now become interest bombs suppressing the self-employed. Those at their limits are choosing debt adjustment through the Saechulbal Fund or considering personal rehabilitation.

Kim Cheolho (46), who runs a karaoke bar near a university in Seoul, recently applied for counseling with the Saechulbal Fund. COVID-19 completely changed his life. Before COVID-19, his business was doing reasonably well, but after the pandemic hit, customers stopped coming due to the nature of the karaoke business. With business suspension orders, he was barely able to operate. He had no choice but to take out loans here and there to make ends meet. His monthly rent has been overdue for more than six months. At first, the landlord was understanding, but after six months of arrears, the landlord notified him that they would deduct the overdue rent from the deposit. The loans he had taken out turned into a heavy interest burden, tightening the noose around him. As days passed, the number of loans in arrears exceeded those being repaid. With nowhere left to borrow money and the risk of having to close his store and end up homeless, he decided to adjust his debt through the Saechulbal Fund.

Yoo Jinho (29), who opened a cafe just before COVID-19, is considering personal rehabilitation. The pandemic hit shortly after opening, so he barely had a chance to run the business and only accumulated more loans. Eventually, he closed the business and found a job at a construction site in the provinces through an acquaintance. However, the loan for the cafe is coming due next month, and the future looks bleak. Half of his current salary goes to repaying money borrowed from acquaintances, making daily life tight, and even using his entire salary would not be enough to repay the loan. Trying to avoid arrears, he took out loans from various places, but rising interest rates have made this a poison. He even thought that if he had been in arrears for more than three months, he could have applied as a defaulting borrower under the Saechulbal Fund. Ultimately, Yoo decided to receive counseling and apply for personal rehabilitation.

Choi Yeonji (35), who runs a clothing store, is increasingly worried as her loan repayment deadline approaches. Originally selling clothes online, Choi’s online business did well, allowing her to open an offline store. However, operating the offline store only brought her debt. As business declined, she gradually reduced her three part-time employees one by one, and now she is struggling alone, barely able to pay the monthly rent. With the loan repayment deadline approaching, she is certain she will fall behind, but if she can reduce the interest burden even a little, she believes she can repay it somehow. Therefore, Choi applied as a borrower at risk of default under the Saechulbal Fund. If her debt is adjusted as a borrower at risk of default under the Saechulbal Fund, she can maintain the existing contracted interest rate and choose grace and repayment periods according to her financial situation, allowing her to catch her breath.

As small business owners and self-employed people struggling to repay debts turn to debt adjustment through the Saechulbal Fund or personal rehabilitation, borrowers who are managing without arrears are in desperate need of direct loans for small business owners.

Kim Seok (52), who has operated a Chinese restaurant for over eight years, says these days are even harder than during COVID-19. The cost of ingredients has risen across the board, and loan interest rates have nearly doubled. Kim sighed, "A few months ago, the cost of ingredients fluctuated between 30-40% of sales, but now it easily exceeds 50%, leaving nothing left." He added, "Although the interest burden has increased, I am still repaying loans without arrears, and I hope to receive direct loans for small business owners to cover operating expenses." Recently, Kim and other self-employed people in similar situations have filed complaints with related institutions.

[Image source=Yonhap News]