[Self-Employed Financial Report] ① Life with 140 Million Won Debt, Can It Be Repaid?

'2022 Small Business Financial Status Using Guarantees'
Sales Decline and Worsening Funds Lead to Reliance on Loans
Many with Debt Over 100 Million Won... Situation Worsens This Year

On the 3rd, a restaurant in Myeongdong, Seoul, where self-employed people’s worries are deepening, was quiet. Photo by Mun Ho-nam munonam@

"In this business, free pizza delivery is the truth. You have to run a review event '1+1' and give out three coupons just to get orders." Mr. Cha Geun-seong (45), who has been running a pizza shop alone in Jungnang-gu, Seoul for 10 years, came to this conclusion. "When Baemin One (Baedal Minjok's single-store delivery) raised the delivery fee by 1,000 won and Yogiyo cut some discounts, last month's sales were halved," he said. "I put up six Baemin flags (nearby store location ads, 88,000 won per flag), but since I don't charge delivery fees, profits are at rock bottom," he sighed.

Mr. Kang Dae-seon (49), who runs a franchise pork intestine restaurant, also said, "January sales were 23 million won, but it's so miserable." This month's expenses include 9.6 million won for ingredients, 2.2 million won for rent, 4.1 million won for labor costs, 3 million won for alcohol and delivery fees, 1.3 million won for flag advertising, 1 million won for utilities, and 1.2 million won for taxes. Card fees and delivery app commissions were not even included, but the calculator already showed 22.4 million won. Kang said, "This month's profit is zero," and "I even have a 100 million won loan, it's driving me crazy," lowering his head.

Self-employed people have become synonymous with 'debt'; 30% owe debts exceeding 100 million won

During the pandemic, self-employed people became synonymous with 'debt.' Not only were loan maturities extended and interest repayments deferred, but a new start fund policy that forgives debts was also introduced. According to Statistics Korea, there were 5.632 million self-employed people nationwide last year, accounting for 20.1% of all employed persons. How much debt do the self-employed, who open their shops and wait for customers in every alley today, carry? Why did they incur such debt? Will they ever be able to repay it?

According to the '2022 Guarantee Usage Small Business Financial Status Report' (survey of 3,101 small business operators) released by the Korea Credit Guarantee Fund on the 2nd, the average debt per business was 144.07 million won. The largest group was those with debts between 50 million and 100 million won (32.3%), followed by those with 20 million to 50 million won (23.8%). A significant number also had debts in the range of 100 million to 200 million won (18.2%) and 200 million to 400 million won (10.3%).

Four out of ten small business owners said their debt increased over time. 41.0% of businesses reported increased debt compared to a year ago. 33.4% said their debt remained the same, and only 2.56% said it decreased.

The main reason for increased loans was poor sales (59.7%). Regardless of retail, service, or manufacturing industries, performance declined, leading to more borrowing. A hat wholesaler in Dongdaemun Market, Seoul, said, "This winter, I plan to survive by taking out a bank loan just to pay rent," adding, "When the weather warms up, people will go out more and hats will sell better than now." 'Rising costs' were also cited by 36.7% as a cause of increased debt, mainly by those in food and lodging businesses. Last year, soaring inflation caused food prices to rise sharply.

Worsening financial conditions expected this year; no plans to close shops due to initial investment loss

Sales are down, debt is up, and interest rates are rising, worsening financial conditions. Last year, most small business owners reported their financial situation as 'worsened' (67.2%). Those who said it was 'the same' (19.5%) or 'improved' (13.4%) were relatively fewer. The report predicted, "This year, 52.4% expect their financial situation to 'worsen' compared to last year," forecasting that small business owners' financial conditions will deteriorate year by year.

Although there is no hope in sight, most self-employed people have no intention of closing their shops. 83.2% said they plan to continue operating their current business. Reasons include "because the startup costs are too precious" and "because they don't have money to close." Ms. Kim Kyung-jin (51), who opened a snack bar in Incheon two years ago, is unable to pay three months' rent and cannot renew her lease with the landlord. Kim said, "I invested about 180 million won including interior and deposit, so I can't give up the shop," adding, "I'm looking into government-guaranteed loans and savings banks, hoping to negotiate by paying interest on overdue rent." The average startup capital per business was 121.54 million won.

Even if they decide to close their business, the burden of demolition costs, which can be tens of thousands of won per pyeong (3.3 square meters), existing loan repayments, and taxes often prevents them from taking action. The Korea Credit Guarantee Fund said, "The average closure cost for self-employed people was 19.89 million won (as of the first half of last year), so support is needed for closure costs including restoration expenses during the closure process."