[Inside Chodong] The Launch of a Small Business Owners' Bank Must Not Be Delayed

Kim Cheol-hyun, Deputy Director of the Bio, Startup, and Venture Department

"Due to the lack of information on small business owners, it is difficult to determine credit ratings, which leads to disparities in financing conditions such as interest rates, maturity, and collateral." This was stated by Lee Dong-ju, Vice President of the Small and Medium Venture Business Research Institute, at the 'Expert Roundtable on Establishing a Financial Ecosystem for Small Business Owners' held at the National Assembly on the 21st. Lee's remarks, as the presenter that day, encapsulate the financial difficulties that small business owners in Korea have faced.

Currently, small business owners must undergo credit evaluations to obtain loans from banks, but there is no tailored credit evaluation system specifically for them. As a result, financial institutions often apply personal credit scores directly to small business owners. This explains why even a restaurant generating monthly sales in the hundreds of millions of won can be denied loans due to low personal credit scores. Running a restaurant sometimes requires urgent funds, and if the individual uses card loans or similar products, their credit score inevitably drops. The side effects of not accurately assessing small business owners do not end here. Even financially sound small business owners with low personal credit scores are pushed to secondary financial institutions when they need money, which further lowers their credit scores and ultimately hinders the growth of promising small business owners.

This vicious cycle has continued to constrain small business owners financially. When events like the emergency decree in December last year sharply dampen consumer sentiment, the financial sector fails to act as a safety net, and small business owners bear the intensified hardship alone. According to the '2024 Q4 Small Business Owner Trend Report' by Korea Credit Data (KCD), the delinquent loan amount of domestic sole proprietors reached 11.3 trillion won, a 52.7% increase from the previous year. Defaulters owed 2.4 trillion won to banks and 8.9 trillion won to savings banks and mutual finance companies.

While small business owners have never had it easy, the situation is reportedly worsening rapidly. A management status survey conducted by the Korea Federation of SMEs from November 12 to December 6 last year, covering 800 small business owners in sectors closely related to daily life such as wholesale and retail, lodging and restaurants, and manufacturing, found that 55.6% expected this year's business environment to deteriorate compared to last year. Another 39.4% anticipated conditions similar to the already difficult previous year. Furthermore, 93.7% of small business owners with loans felt burdened by principal and interest repayments, and over 80% identified financial support as the most needed policy. The top priority issue to be addressed by the National Assembly or government this year was easing the loan burden caused by high interest rates, cited by 63.4%.

The solution to this problem already exists. It is a bank for small business owners that accurately understands those who have been excluded from financial services and benefits and can provide the necessary financial services. The licensing process for the fourth internet-only bank, focused on supplying funds to small business owners, will begin at the end of next month. Preliminary license applications will be accepted, followed by a 2-3 month evaluation and review period before the preliminary license decision is made. Coincidentally, this schedule overlaps with the impeachment trial and the potential early presidential election that may follow. There are concerns that the internet-only bank licensing may not proceed as planned due to this. However, given the current reality faced by small business owners, politics must not obstruct progress once again.