SME Mutual Aid Fund Expands Financial Support for SMEs Through Cooperative Partnerships

The Korea Federation of SMEs announced on June 3 that it has begun expanding financial support for small and medium-sized enterprises (SMEs) with limited access to finance by strengthening its collaboration with cooperatives through the SME Mutual Aid Fund.

The SME Mutual Aid Fund is a system operated by the Korea Federation of SMEs since 1984, which utilizes funds raised from contributions by SMEs and government subsidies. Through this system, SMEs can access credit-based financial products such as loans against defaulted accounts receivable, promissory note and check loans, and working capital loans.

Recently, due to the economic downturn, including sluggish domestic demand and exports, SMEs and small business owners are facing increasing financial difficulties. However, financial institutions are reluctant to provide credit loans due to concerns over rising delinquency rates. In contrast, the SME Mutual Aid Fund is helping to alleviate funding shortages by offering credit loans to SMEs and small business owners with limited collateral capacity.

Depending on their credit rating and based on the balance of their paid-in contributions, SMEs can access credit loans at an average interest rate of 6%, up to three times their balance. If the credit limit is insufficient, they can obtain real estate-backed loans (including subordinated collateral) at a 4.5% interest rate, up to ten times their balance. In addition, local governments such as Seoul Metropolitan City and Gyeonggi Province provide interest rate support of 1-2%, further reducing the financial burden.

The Korea Federation of SMEs plans to enhance accessibility to the system by working with 884 SME cooperatives nationwide to more effectively inform member companies about the Mutual Aid Fund, as well as by providing support for enrollment and loan consultations.

As of the end of May, more than 30 industry-specific cooperatives and SME-related associations, including the Korea Surface Finishing Industry Cooperative, Korea Construction Recycled Resources Cooperative, Seoul Printing Information Industry Cooperative, Gyeonggi Incheon Machinery Industry Cooperative, Chungnam Western Supermarket Cooperative, Incheon Seo-gu SME Managers Association, and Korea General Liquor Wholesale Association, are actively guiding their members in utilizing the Mutual Aid Fund through agency agreements.

Lee Changho, head of the Mutual Aid Business Division at the Korea Federation of SMEs, stated, "SME cooperatives are the organizations closest to the voices of SMEs on the ground," adding, "We will continue to strengthen the linkage system so that the Mutual Aid Fund can provide more practical financial support to a greater number of companies through cooperatives."