Despite Monthly Sales of 15.99 Million KRW in Q4,
480,000 Small Businesses with Loans Have Already Closed
Unable to Repay an Average of 5.68 Million KRW in Overdue Debt
"Consumers Sensing Economic and Political Uncertainty
Seem to Have Cut Back First on Discretionary Items Like Coffee and Alcohol"
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It has been confirmed that more than one out of every ten small business owners and self-employed store operators who owe debt (loans) to financial institutions have already closed their businesses. They struggled under an average loan burden exceeding 60 million KRW and ultimately chose to close their businesses with an average overdue principal and interest of 5.68 million KRW. In particular, cafes and bars suffered the greatest damage as consumer sentiment shrank due to martial law and other factors.
According to the '2024 Q4 Small Business Trends' report released by Korea Credit Data on the 17th, as of the end of Q4 last year, the total number of businesses with personal loans was estimated at 3,622,000. Among them, 86.7% (3,140,000) were still operating normally despite having debt, but 13.3% (482,000) were closed (based on National Tax Service reports). The average overdue amount for closed businesses was 5.68 million KRW, and the average loan balance was 61.85 million KRW. The total loan balance for all personal businesses was 716 trillion KRW, up 0.5% and 2.3% from the previous quarter (712 trillion KRW) and the same quarter last year (700 trillion KRW), respectively. By financial sector, bank loans accounted for 60.5%, and secondary financial institutions such as mutual finance accounted for 39.5%.
The total overdue principal and interest on personal business loans reached 11.3 trillion KRW, increasing by 2.3% and 52.7% compared to the previous quarter and one year ago, respectively. Of this, 21.2% (2.4 trillion KRW) was overdue in banks, and 78.8% (8.9 trillion KRW) in secondary financial institutions. In particular, for savings banks, the overdue amount (900 billion KRW) accounted for 5.0% of the personal business loan balance (17.1 trillion KRW). Mutual finance institutions such as Saemaeul Geumgo also had an overdue ratio of 2.7%, more than four times higher than banks (0.6%).
The reason self-employed individuals are struggling to repay loans is that their business conditions are poor. The estimated annual sales per small business last year were 178.82 million KRW, with profits of 42.73 million KRW. Compared to the previous year, sales decreased by 0.57%, but profits increased by 14.71%. The increase in profits despite declining sales appears to be the result of small business owners' efforts to reduce expenses. Annual expenses per business last year were 136.09 million KRW, down 4.56% from the previous year.
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Looking at Q4 last year alone, sales were estimated at 47.98 million KRW (15.99 million KRW per month). This was an increase of 1.07% compared to the same period the previous year and 10.77% compared to the previous quarter. Quarterly profits per business were 11.58 million KRW (3.86 million KRW per month), up 5.25% and 9.92% compared to one year and three months ago, respectively. A Korea Credit Data official explained, “Self-employed individuals experienced a significant contraction in consumption for several years due to the COVID-19 pandemic, then saw some recovery in 2023 and expected a full rebound in 2024. However, due to economic downturn and martial law, the year-end special demand disappeared, and actual sales last year stagnated at levels similar to or lower than 2023.”
Among industries, cafes suffered the largest decline in consumption. Cafe sales in the food service sector in Q4 last year dropped sharply by 9.5% compared to Q3 and were 1.3% lower than a year ago. Fast food and bar sales also declined by 1.8% and 1.7%, respectively, compared to the previous quarter. A Korea Credit Data official analyzed, “Consumers feeling economic and political uncertainty are presumed to have cut back first on discretionary items such as coffee and alcohol.”
This report is based on a sample survey of 160,000 businesses subscribed to Korea Credit Data’s personal business management service ‘Cash Note,’ with weighting applied from small business surveys to estimate the overall status of personal businesses. Data linked with the Credit Finance Association and HomeTax for each business collected through Cash Note was used, and for financial status such as loans, personal business loan data received from the Korea Credit Information Services was also utilized.
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