'Low-Interest Refinancing' Expanded to All Self-Employed... Maximum Limit Up to 200 Million KRW

Financial Services Commission Revamps Low-Interest Refinancing Program for Self-Employed
Increases Limits to 100 Million KRW for Individuals, 200 Million KRW for Corporations
'3-Year Grace Period - 7-Year Installment Repayment'
Low-Interest Refinancing of 20 Million KRW Credit Loans for Self-Employed Affected by COVID-19

[Image source=Yonhap News]

[Asia Economy Reporter Sim Nayoung] The Financial Services Commission (FSC) has decided to improve the low-interest refinancing program for small business owners. Previously, only self-employed individuals affected by COVID-19 were eligible for refinancing under the 'Individual Business Owner Loan' program, but starting from March, the eligibility will be expanded to include all self-employed individuals, and the loan limit will be increased. 'Credit loans' will also be included in the refinancing program up to 20 million KRW. However, refinancing for credit loans will only be available to self-employed individuals affected by COVID-19 and will be implemented from the second half of this year.

According to the 'Self-Employed and Small Business Owners Low-Interest Refinancing Program Reform' announced by the FSC on the 2nd, since the program's launch last September until the end of January, over 7% of self-employed individuals' high-interest business loans?approximately 7,300 cases (about 270 billion KRW)?have been converted to low-interest loans with an annual interest rate of 6.5% or less. An FSC official stated, "The average interest rate on existing loans for self-employed individuals using the low-interest refinancing program was around 12%, and through this program, the annual interest burden has been reduced by more than 5 percentage points."

However, due to stringent application requirements and worsening economic conditions, the FSC has expanded the eligibility for low-interest refinancing loans for self-employed individuals.

First, under the 'Individual Business Owner Loan' category, the support target will be expanded to include all individual business owners and small corporate businesses. An FSC official explained, "Until now, support was limited to individual business owners or small corporate businesses who had received disaster relief funds or compensation for losses, or who had received maturity extensions or repayment deferrals from financial institutions. Starting in March, any individual business owner or small corporate business will be able to apply for the low-interest refinancing program."

However, eligible loans remain those business loans issued before the end of May last year, as is currently the case. Refinanced loans renewed after June last year will also be included.

The refinancing loan limit will also be increased to 100 million KRW for individuals and 200 million KRW for corporations. An FSC official said, "Previously, the limits were 50 million KRW for individuals and 100 million KRW for corporations, but these have been doubled. Within the increased limit, additional high-interest loans can be refinanced."

The repayment structure has also been changed to a '3-year grace period followed by 7-year installment repayment' to reduce the monthly repayment burden on self-employed individuals. Originally, it was a '2-year grace period followed by 3-year installment repayment,' but it has been extended for longer-term operation. Based on a refinancing loan principal of 100 million KRW, under the current system, monthly repayments would be 2.78 million KRW for 5 years, but going forward, it will be 1.19 million KRW per month for 10 years.

An FSC official stated, "The low-interest refinancing program waives all prepayment penalties, so borrowers who wish to repay early can do so at any time regardless of this program improvement. With the government's budget allocation this year, the refinancing scale has been expanded, and the application period for the refinancing program for self-employed individuals has been extended by one year from the end of this year to the end of next year." As the government budget increased from 680 billion KRW to 760 billion KRW, the supply scale has also expanded from the existing 8.5 trillion KRW to 9.5 trillion KRW.

Starting from the second half of this year, household credit loans with a limit of 20 million KRW for self-employed individuals affected by COVID-19 will also be included in the refinancing program. Originally, loans taken by self-employed individuals for business purposes are classified as individual business owner loans, and household loans were excluded from refinancing because their usage was unclear. However, the FSC recognizes that self-employed individuals have taken high-interest household loans during the COVID-19 period to cover business operating costs, so up to 20 million KRW of credit loans will be refinanced.

An FSC official explained, "Among credit loans, loans from secondary financial institutions including card loans are eligible for refinancing, but non-financial sector debts such as loans from private lenders are not included. The repayment structure will operate in the same way as the existing individual business owner loans."