Conversion from High-Interest Loans Over 7% to 4.5% Loans
Reducing Repayment Burden for Small Business Loans
Applications Accepted from the 26th... Support Up to 50 Million Won
The government will implement a debt refinancing loan program worth 500 billion KRW targeting small business owners. Amid a significant increase in self-employed debt since COVID-19, this is expected to provide relief to small business owners struggling with high-interest loans.
The Ministry of SMEs and Startups announced on the 23rd that applications for the ‘Small Business Owner Debt Refinancing Loan’ for medium- and low-credit small business owners will open from 4 p.m. on the 26th.
On the 21st, a personal credit loan interest rate notice is posted at a commercial bank in Seoul. Photo by Jinhyung Kang aymsdream@
Self-employed Loan Volume Reaches 1,052 Trillion KRW...Reducing Repayment Burden with Low-Interest Loans
The volume of loans to self-employed individuals nearly doubled from 686 trillion KRW in 2019 to 1,052 trillion KRW as of September last year. The interest rate on loans to small and medium enterprises also rose from 3.5% per annum in December 2019 to 5.31% in December last year.
According to the Small and Medium Business Research Institute, the BSI (Business Survey Index) for small business owners in January this year was 79.5, down 5.4 points from the previous month. This decline is due to high interest rates and sluggish domestic demand. A BSI above the baseline of 100 indicates more positive responses than negative regarding economic outlook, while a BSI below 100 means negative responses outnumber positive ones.
In response, the Ministry of SMEs and Startups has established a 500 billion KRW ‘Small Business Owner Debt Refinancing Loan’ program that converts high-interest loans held by small business owners at private financial institutions or loans with repayment difficulties into policy funds with low-interest, long-term installment repayment conditions. The refinancing loan support targets two types: business loans held by medium- and low-credit (NCB personal credit score 839 or below) small business owners that have either high-interest loans of 7% or more from banks or non-bank institutions, or bank loans for which maturity extension is difficult and for which the bank has issued a ‘Maturity Extension Difficulty Confirmation Letter.’
Converting 7.5% High-Interest Loans to 4.5% Low-Interest Loans
Regardless of the application type, loans will be refinanced at a fixed interest rate of 4.5% with a 10-year installment repayment plan, supporting up to 50 million KRW per business regardless of the number of loans to be refinanced. However, if the applicant has already received refinancing loans from the Small Enterprise and Market Service or low-interest refinancing programs from the Korea Credit Guarantee Fund in 2022, the amount already refinanced will be deducted from this year’s refinancing loan limit. Since this fund is intended to support small business owners who face repayment difficulties due to unforeseen high interest rates, refinancing is limited to loans issued before the 2024 budget announcement (August 31 last year). Applicants must have been making diligent repayments for at least three months at the time of application.
Applications for the Small Business Owner Debt Refinancing Loan can be submitted online from 4 p.m. on the 26th via the Small Business Policy Fund website. For digitally vulnerable groups who find online applications difficult, applications can also be made at 77 regional centers of the Small Enterprise and Market Service. Banks handling the refinancing loans will verify whether the loan interest rate is 7% or higher, whether the applicant has been making diligent repayments for three months, and other eligibility criteria before assessing repayment feasibility and making the final loan decision.
Lee Dae-hee, Director of the SME Policy Office at the Ministry of SMEs and Startups, stated, “We hope that small business owners who had no choice but to take high-interest loans during the crisis will find relief through the refinancing loan program and be able to repay their loans normally.”
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