Only 10,000 Won a Day Means 'Deciding to Close'... "Sustainable Support Measures for Small Business Owners" [Q&A]

The government and 20 banks will begin full-scale implementation of a financial support plan for small business owners, worth up to 700 billion KRW, as early as March next year. To reduce the financial burden on small business owners, debt adjustments such as installment repayments and interest reductions will be made, and support will be provided to allow repayment of remaining loans after business closure over a maximum of 30 years, at about 10,000 KRW per day. Additionally, for highly competitive small business owners, plans include not only additional business funding support but also commercial district analysis and financial and management consulting.

On the 23rd, Kim Byung-hwan, Chairman of the Financial Services Commission, held a meeting with Oh Young-joo, Minister of SMEs and Startups, Lee Bok-hyun, Governor of the Financial Supervisory Service, Cho Yong-byeong, Chairman of the Korea Federation of Banks, and heads of 20 member banks to announce financial support measures for small business owners in the banking sector, including ▲ customized debt adjustment for borrowers before delinquency ▲ low-interest, long-term installment repayment for closed businesses ▲ win-win guarantees and loans ▲ introduction of bank consulting programs, along with various regulatory relaxation measures to support these initiatives.

As small business owners continue to face management difficulties amid high inflation, the expansion of support funds for small businesses has become urgent. On the 28th, empty storefronts were seen scattered throughout the commercial area near Ewha Womans University in Seodaemun-gu, Seoul. Photo by Jinhyung Kang aymsdream@

Below are questions and answers related to the banking sector's financial support for small business owners.

What are the differences compared to the Saechulbal Fund?

Since the Saechulbal Fund was launched in 2022, its performance was evaluated as poor around June this year. This can be interpreted as either the Saechulbal Fund's support requirements being strict or that many borrowers do not have delinquencies. In response, when the government relaxed the requirements in the 'Second Half Economic Policy Direction' on July 3, the number of delinquent borrowers using the Saechulbal Fund increased. What remains are borrowers without delinquencies. Although still classified as normal debt, the focus was on providing thorough financial support for small business borrowers at risk of delinquency.

Support for closed businesses is similar. The Saechulbal Fund is basically a program supporting closed businesses with delinquencies. The low-interest, long-term installment repayment program for closed businesses prepared by the banking sector this time allows even closed businesses without delinquencies to receive interest reductions and installment repayment support for up to 30 years.

How does this plan differ from the livelihood financial support plan implemented earlier this year?

This banking sector financial support for small business owners is a sustainable support plan rather than a one-time measure. Earlier this year, the main goal was immediate relief of financial burdens for small business owners, focusing on interest cashback (refunds). Although it contributed to improving the management situation of small business borrowers, it was criticized for being a one-time measure. Therefore, this plan focuses on sustainable measures such as debt adjustment including installment repayments and interest reductions, funding support for business recovery, easing financial burdens for closed businesses, and customized consulting.

What are the expected effects of this financial support plan for small business owners?

All banks are expected to reduce interest burdens or contribute about 600 billion to 700 billion KRW annually, totaling approximately 2.1 trillion KRW over three years, providing financial support to about 250,000 small business owners annually (based on loan amounts of 14 trillion KRW). This estimate assumes 20% and 30% application rates for customized debt adjustment and closed business support programs, respectively. Actual support amounts may exceed estimates. Since more applications are better, the plan is to actively promote this financial support plan around its launch in March next year.

Some say this conflicts with the value-up program due to bank cost burdens. What is your view?

Supporting customers to avoid delinquency and repay debts normally in the mid to long term also benefits the banks' soundness. This is a policy that reduces debt risk not only for small business owners and banks but also for the overall economy. Although some deterioration in soundness may occur due to debt adjustment, financial authorities plan to issue non-action opinions regarding credit classification and pursue regulatory relaxation measures.

What do you think about some public opinions that regularizing win-win finance burdens banks?

This support plan was prepared by the banking sector in agreement to help small business owners facing ongoing difficulties. There is no plan to regularize it.

Debt adjustment for small business owners before delinquency... easing financial burdens after business closure

The banking sector will support long-term installment repayments and interest reductions even for small business borrowers before delinquency if repayment difficulties are expected. The existing 'Individual Business Loan 119' program, which banks have independently operated, will be strengthened and operated as '119 PLUS' (tentative name). Existing business loans will be refinanced into long-term installment products with up to 10 years, and interest reduction measures will be implemented by limiting recalculated interest rates during refinancing and maturity extension processes to below existing rates.

Small business owners planning to close their businesses before delinquency should also consider the low-interest, long-term installment repayment program for closed businesses. Typically, individual business loans are based on ongoing business operations, so business closure is considered a reason for lump-sum repayment. Therefore, this program supports small business owners who can no longer continue their business to close it without heavy burdens and repay remaining loans slowly, at about 3% interest?half the current average individual business loan interest rate (about 6%)?for up to 30 years.

How does this differ from the existing 'Individual Business Loan 119' program?

The existing program targeted only individual business owners, but the new program will cover both individual business owners and corporate small business owners. Additionally, the criteria for borrowers at risk of delinquency will be quantified and detailed; if they meet the Financial Supervisory Service's credit rating system (10 grades) at grade 6 or below for individual business owners or corporate enterprises, the screening process will be simplified. The support content has also expanded compared to the existing program, actively supporting not only maturity extensions but also long-term installment refinancing (up to 10 years) and interest burden relief.

Does lowering the loan interest rate to the existing rate mean there is no real interest rate reduction effect?

Typically, borrowers applying for debt adjustment have a high possibility of credit rating deterioration, so recalculated interest rates are often much higher than existing rates. However, through customized debt adjustment, the existing interest rate is set as the upper limit, so there is a real interest reduction effect. For example, if the current loan interest rate is 5.5%, even if the recalculated rate reaches 8%, support will be provided at the existing 5.5% interest rate with a 10-year long-term installment repayment.

How much can the financial burden be reduced through the program for closed businesses?

If an individual business loan of about 100 million KRW is repaid in installments over 30 years, it amounts to about 10,000 KRW per day. After closing the business, repaying about 10,000 KRW daily allows gradual repayment. This level of burden is significant in creating conditions to pursue other work such as employment. Overall, if 30% of small business owners with bank loans who have closed their businesses apply, support can be provided to about 100,000 people annually (based on loan amounts of 7 trillion KRW). The estimated annual interest burden reduction effect for borrowers is 315 billion KRW.

Can borrowers use this program for closed businesses and still receive other individual business loans?

This program is designed to support borrowers who want to quit their business and pursue other work but face difficulties due to bank debts. If they wish to apply for new business loans, they can terminate the program through repayment or refinancing and then use the new loans.

Additional funds and consulting for competitive small business owners

There is also a program for small business owners who want to grow further. The banking sector plans to provide not only win-win guarantees and loans for additional business funds but also consulting programs offered by banks.

'Haetsal Loan 119,' which will be implemented from April next year, targets micro individual business owners with annual sales of 300 million KRW or less who have been performing the banking sector's 119 PLUS program for more than six months. The interest rate is about 6-7% per annum, with a maximum 5-year installment repayment, and the maximum limit is 20 million KRW if comprehensive counseling is received. 'Small Business Growth Up' is a program that supplies guaranteed loans for equipment and working capital to small business owners who prove competitiveness enhancement plans, starting from July next year. It applies a lower interest rate than unsecured loans (guarantee fee rate 0.8%) with up to 10 years installment repayment (including up to 3 grace periods), with limits of 50 million KRW for individual business owners and 100 million KRW for corporate small business owners.

The main bank will also provide consulting such as commercial district analysis and financial and management support. Priority support will be given to startups and those undergoing debt adjustment, with plans to gradually expand the target group. After initial consulting by each bank, a task force (TF) led by the Korea Federation of Banks will be formed to prepare detailed consulting plans in the first quarter of next year.

What is comprehensive counseling required to receive up to 20 million KRW from Haetsal Loan 119?

It refers to small business owner-related consulting programs available at banks and financial institutions. This includes financial education, self-employment consulting, and credit debt consulting programs provided by the Korea Inclusive Finance Agency, as well as banks' own consulting programs and related institution programs from the Korea Credit Guarantee Fund and Korea Technology Finance Corporation.

Is it possible to receive loans through Haetsal Loan 119 from multiple banks simultaneously?

In principle, yes. However, the loan limit per borrower for this product is capped at 20 million KRW, so even if loans are taken from multiple banks, the total cannot exceed 20 million KRW.

How is competitiveness enhancement proven to receive the Small Business Growth Up loan?

The competitiveness enhancement plan of the loan applicant is assessed according to a checklist provided by the regional credit guarantee foundation. Before the product launch, the checklist will be prepared and announced in consultation with the regional credit guarantee foundation.

Can consulting be received without having a main bank?

Most banks providing small business owner consulting services offer consulting even to customers without existing transaction relationships. Even without a main bank, you can inquire at the bank where you wish to receive consulting.

Can banks provide consulting at the level customers demand?

For areas where it is difficult to perform consulting at the level customers demand, efforts are being made to provide services through cooperation with public institutions and private specialized organizations. Banks also plan to continuously strengthen their own consulting capabilities. Consulting is a method to secure long-term excellent customers by strengthening trust with customers and enhancing their competitiveness, which also benefits the banks' soundness in the mid to long term.

With the trend of bank branch closures, can consulting be expanded?

Various consulting center introduction plans are being considered, such as dedicated counters within existing branches, joint consulting centers, and conversion of closed branches, to increase contact points with consulting demanders while minimizing banks' burdens.