Small Business Owners' 'Low-Interest Refinancing' Eligibility Extended by 1 Year

Small Business Owners with High-Interest Loans Over 7%
Eligibility Extended Until May 31, 2023
Refinanced Loan Interest Rate Reduced from 5.5% to 5.0%
Guarantee Fee of 0.7% Waived

The government will extend the eligibility period for the 'Low-Interest Refinancing Program' by one year to loans initially issued by May 31, 2023, to alleviate the interest burden on small business owners caused by high-interest loans (7% or higher) that increased during the COVID-19 recovery process. Additionally, the maximum loan interest rate after refinancing will be lowered from the current 5.5% to 5.0%, and the 0.7% guarantee fee will be waived.

On the 13th, the Financial Services Commission announced the expansion and revision plan for the 'Low-Interest Refinancing Program for Small Business Owners' and stated that it will be implemented starting from the 18th. Since its first launch in September 2022, the program has undergone two revisions, converting over 25,000 high-interest business loans (7% or higher) for sole proprietors and others into low-interest loans with an annual rate of 5.5% or less. The total amount refinanced is approximately 1.3 trillion KRW.

The average interest rate on existing loans for sole proprietors using the low-interest refinancing program was 9.90%, which decreased to an average of 5.48% after refinancing. Through this program, sole proprietors have reduced their annual interest burden by approximately 4.42 percentage points.

The Financial Services Commission will first extend the eligibility criterion for the initial issuance date of high-interest loans eligible for refinancing from the current May 31, 2022, to May 31, 2023.

The Commission explained, "Considering the purpose of the 'Low-Interest Refinancing Program' to reduce the interest burden on sole proprietors and others who have faced difficulties due to the unavoidable increase in high-interest loans during the COVID-19 recovery process, loans initially issued during the period when the COVID-19 crisis level was maintained at 'serious' are included in the refinancing program."

Accordingly, business loans for sole proprietors initially issued by May 31, 2023, and household credit loans for sole proprietors initially issued between January 1, 2020, and May 31, 2023, will be eligible for the 'Low-Interest Refinancing Program' if the interest rate at the time of application is 7% or higher.

The Financial Services Commission will lower the maximum loan interest rate after refinancing by 0.5 percentage points from the current 5.5% to 5.0% for one year and waive the 0.7% guarantee fee. This will further reduce the cost burden for sole proprietors using the 'Low-Interest Refinancing Program' by up to 1.2 percentage points. Additionally, borrowers who used the program before the implementation date of the revision on the 18th will also receive the cost reduction benefits.

This initiative is supported by banks independently securing funds to provide additional assistance to self-employed individuals struggling with prolonged high interest rates. The interest rate cap for the 'Low-Interest Refinancing Program' will be '5.0% in the first year, 5.5% in the second year, and within bank bond AAA (1-year) + 2.0 percentage points from the third to tenth year,' and the guarantee fee will be '0% in the first year, 0.7% in the second to third years, and 1.0% from the fourth to tenth years.'

The interest rate reduction benefit will be provided by each bank choosing between applying a maximum 5.0% interest rate or refunding the interest difference over the next year, considering their IT system conditions. The guarantee fee reduction benefit will be supported by waiving 0.7 percentage points of the guarantee fee at the time of the next year's guarantee fee payment.

The Financial Services Commission stated, "Since this cost reduction benefit is provided from funds prepared by the banking sector to alleviate the high-interest burden on sole proprietors, refinancing loans for sole proprietors issued by December 20, 2023, which are already included in the interest refund target under the 'Banking Sector Livelihood Finance Support Plan,' are excluded."

Meanwhile, small corporate and sole proprietors can check whether they hold loans eligible for the refinancing program and detailed application procedures through the Korea Credit Guarantee Fund website. If they hold eligible loans, applications and consultations can be made through 15 banks nationwide until December 31 of this year.

Additionally, refinancing household credit loans requires submission of documents verifying business-related expenses and must be done in person. Sole proprietors who have already refinanced household credit loans and wish to refinance additional household credit loans can only do so through the same bank branch where the previous refinancing was conducted.