"Heavy Financial Burden"... Authorities Take Measures [Self-Employed in Crisis]③

Amid the COVID-19 pandemic bill, the worsening triple crisis of high prices, high interest rates, and high exchange rates has led to a sharp increase in loans and delinquency rates, worsening the situation for small business owners and self-employed individuals day by day. They identified support for increased financial costs due to high interest rates as their top priority. Financial authorities have also launched a task force (TF) to find support measures and are actively responding.

On the 16th, a rental notice is posted at a store in Insadong, Jongno-gu, Seoul. Photo by Jin-Hyung Kang aymsdream@

According to the financial sector on the 5th, in the '22nd National Assembly Small Business Owners Survey' conducted by the Korea Federation of Micro Enterprise (KFME) from the 2nd to the 8th of last month targeting 741 small business owners, 39.1% of respondents answered 'negative' when asked about future business condition prospects. This surpassed 'positive' (28.5%) and 'neutral' (32.4%).

Regarding the small business sectors that the recently inaugurated 22nd National Assembly should address first (multiple responses allowed), 'expansion of financial support to ease financial burdens' overwhelmingly accounted for 64.0%. Other tasks included 'support for energy costs and reduction of payment fees to ease business burdens' (47.8%) and 'revitalization of sales through Onnuri gift certificates and local currencies' (24.4%).

The situation for self-employed individuals is worsening day by day. Last year, the nationwide closure rate of self-employed businesses rose by 0.8 percentage points from the previous year to 9.5%, approaching double digits. The number of closures also increased by about 111,000 from the previous year to approximately 911,000, nearing the one million mark. The number of debt adjustment cases through the Korea Asset Management Corporation (KAMCO)'s New Start Fund recently reached 4,690 monthly applicants, a 51% increase compared to 3,107 the previous year.

The financial sector attributes the worsening situation of small business owners and self-employed individuals to the triple crisis that arrived before the COVID-19 impact was fully resolved. The debts that surged during the COVID-19 period and those deferred by maturity extensions and repayment deferrals had not yet been settled when adverse factors such as inflation and base interest rate hikes emerged.

In particular, the triple crisis phenomenon is also squeezing private consumption, which constitutes the income of self-employed individuals. According to data released by financial authorities using IBK Industrial Bank of Korea data, the average card sales growth rate of domestic individual business owners was 17.0% in January 2022, when the COVID-19 pandemic was winding down, but has been in a negative growth trend since the second quarter of last year when the impact of interest rate hikes became significant.

The financial sector expects that the pain for self-employed individuals may worsen once the COVID-19 loan maturity extension and repayment deferral measures end next year. Although maturity and interest/principal repayments were deferred, the situation of self-employed individuals has not improved, so the same situation may continue. A policy finance institution official said, "Considering the current economic situation, there is a significant amount of self-employed guarantee assets supported during the COVID-19 period, but it is questionable whether these can be settled after the maturity extension and repayment deferral measures end next year."

According to the '2023 Financial Status Survey of Small Business Owners Using Guarantees' published by the Korea Credit Guarantee Foundation, 64.8% of respondents cited 'the need for additional guarantees or loans to repay loans' as the expected problem when loan maturity extensions and repayment deferrals end. 17.8% cited 'concerns about bankruptcy due to lack of repayment ability.' Especially in the food and lodging industries, where self-employed individuals are concentrated, the proportion concerned about bankruptcy was notably high at 23.2%.

As this situation continues, financial authorities have also begun preparing countermeasures. The Financial Services Commission recently formed the 'Task Force (TF) for Supporting Low-Income and Self-Employed Individuals' and is discussing support measures. The TF plans to hold several meetings and promote and review ▲improving repayment ability through employment support, ▲customized debt adjustment support reflecting debtor characteristics, ▲tailored financial support, ▲stabilization of policy low-income financial resources, and ▲improvement of the low-income financial system.

Experts unanimously agree that it is necessary to reduce the financial cost burden as the situation for small business owners and self-employed individuals is deteriorating to the worst. Professor Lee Jeong-hee of Chung-Ang University's Department of Economics said, "Since 2020, it has already been four years since self-employed individuals have been unable to operate or have faced significantly worsened business environments due to COVID-19 and the triple crisis, so their stamina has reached its limit. Maturity extension and repayment deferral measures should be judged based on the situation, but attempts to reduce financial costs are necessary."

Professor Seo Ji-yong of Sangmyung University said, "Currently, it is necessary to quickly include personal business loans in the refinancing loan platform targeting mortgage, jeonse (key money deposit) loans, and credit loans to enhance accessibility for self-employed individuals," adding, "Regarding fund supply, selective measures should be taken based on effectiveness analysis, and it is worth considering a method where the government directly provides credit enhancement, as in the United States."

Along with this, there are calls for structural reforms to reduce the excessively high proportion of self-employment in the mid to long term. Professor Kim Sang-bong of Hansung University said, "The biggest problem is that the proportion of self-employed individuals in our society is too high compared to other countries, and no significant restructuring has been carried out so far," adding, "For example, if support for closures is strengthened rather than financial support for start-ups and operations, a natural exit route could open." Professor Kim also said, "It is time for related ministries to jointly respond from employment and industrial perspectives to prepare support measures for self-employed individuals who have closed or are at risk of closing to enable their recovery."