[Small Business Restructuring] ③ US and Japan Focus on 'Recovery'... Integrated Support from Financial Aid to Expert Consulting

US and Japan Focus on 'Recovery' and 'Revival' Over Closure
Orderly Closure Guided Only When Revival Is Deemed Impossible by Experts
In Korea, Business Closures Often Based on Owners' Subjective Judgment Rather Than Expert Assessment
Rising Loan Volumes and Delinquency Rates Among Small Businesses Increase Burden on Banks

Editor's NoteSouth Korea has the seventh highest proportion of self-employed workers among OECD member countries. Moreover, most self-employed individuals are concentrated in industries with low entry barriers, such as restaurants and real estate (leasing). As a result, intense competition in these low-profit sectors has led to nearly one million business closures annually. Considering that the second wave of baby boomers (born between 1964 and 1974) began reaching the statutory retirement age last year, it is projected that by 2032, the number of self-employed people aged 60 or older will reach 2.48 million. This trend of retirees turning to self-employment places a significant burden on the macroeconomy. To address the challenges facing the self-employed, it is necessary to structurally extend the period of earned income and to improve government financial support so that it encourages business closure or industry transition. Asia Economy has analyzed the current situation of self-employment in Korea based on statistical data and government policies. In addition, we aim to present policy directions for the government by examining various expert perspectives and international case studies.

#Shoyo, a limited liability company in Japan, was originally a ramen restaurant but faced a crisis as sales plummeted due to COVID-19. The burden of fixed costs such as rent, labor, and maintenance became overwhelming, prompting the company to consider closure. However, by utilizing the Ministry of Economy, Trade and Industry's "Business Restructuring Subsidy Program," Shoyo managed to recover. The business shifted from primarily offline store sales to an automated vending system by manufacturing frozen ramen. This allowed for 24-hour sales and stabilized revenue.

In South Korea, small business owners account for 20% of all employed people, indicating a high proportion of small businesses. However, the closure rate compared to new business openings reaches 73%, which has become a burden on the economy. Especially as COVID-19 has impacted small businesses not only in Korea but worldwide, various government support measures for small businesses have been implemented in many countries. Unlike Korea, where financial support such as subsidies is mainly focused on business closure, countries like Japan and the United States emphasize recovery through professional management consulting and industry transition, and if recovery is deemed impossible, they guide businesses toward orderly closure. Given the high proportion of self-employed and similar economic structure, Japan is often compared to Korea, while the United States experienced significant damage from COVID-19. It is now time to examine the cases of Japan and the United States to identify areas for improvement in Korea's small business support policies and seek practical solutions.

Japan and the US Focus on 'Recovery'... Orderly Closure Guided by Expert Assessment When Revival Is Impossible

A key feature of Japan's small business support policy is that not all struggling small businesses receive financial support. In Japan, the public Small and Medium Enterprise Revitalization Support Council diagnoses businesses in crisis through consultations and, based on the results, implements integrated business improvement and debt restructuring. During the initial consultation, companies must prepare documents such as financial statements for the last three quarters and a business overview, which are used to assess the possibility of recovery. If recovery is deemed possible, the council supports debt restructuring with financial institutions; if recovery is unlikely, it encourages business liquidation and supports closure by providing legal assistance, such as lawyers, following a two-track approach.

Japan's government-level financial support for small businesses is best represented by the "Business Restructuring Subsidy." This program, overseen by the Ministry of Economy, Trade and Industry, was launched in 2021 to support business restructuring and industry transition for small and medium-sized enterprises and small business owners affected by COVID-19. The program provides up to 10 million yen (approximately 93.73 million won), with the amount varying depending on business size and industry. The subsidy can be used for building remodeling, machinery and equipment purchases, and IT system construction. Notably, support is provided not only for business deterioration but also for business owners unable to pass on their businesses due to aging.

Sanbonmatsuchaya is a case that successfully transitioned industries by utilizing the Business Restructuring Subsidy. Located in Okunikko National Park in Nikko City, Tochigi Prefecture, this company had traditionally sold food, beverages, and specialty products to tourists. Established in 1871, it boasts a history of over 150 years, but as tourist numbers plummeted due to COVID-19, sales dropped by about 40.6% compared to pre-pandemic levels. Facing the threat of closure, Sanbonmatsuchaya was selected in the first round of subsidy applications and successfully shifted from a tourism-dependent revenue model to entering 232 supermarkets nationwide and expanding into online sales, achieving a turnaround.

The United States is similar to Japan in that it also emphasizes the "recovery" of small businesses. In the US, the Turnaround Management Association (TMA), a private organization, deploys restructuring experts such as business turnaround consultants, lawyers, and bankruptcy trustees to assess business models from multiple angles. The TMA analyzes three criteria: whether there is at least one viable core business, whether appropriate bridge financing is available, and whether there are sufficient organizational resources. If recovery is deemed possible, support is provided for revival.

Luna's Cafe, located in Houston, Texas, is a case that succeeded in recovery with TMA's support. The cafe faced an 80% drop in sales due to COVID-19, along with the burden of rent and a labor shortage, putting it at risk of closure. TMA intervened, providing consulting from turnaround experts, redesigning the financial structure, and assisting with applications for government subsidies and loan programs. Additionally, by introducing a new delivery service, Luna's Cafe managed to recover 60% of its sales within a year.

The reason the United States relies on private organizations for support is that bankruptcy law prohibits the appointment of stakeholders. At the government level, the Small Business Administration (SBA) primarily provides relief to small businesses hit by COVID-19. It is noteworthy that the SBA's size and role have expanded significantly since the pandemic. The number of SBA employees increased from 3,293 in 2015 to about 9,000 in 2021, nearly tripling.

There are also cases where the SBA has guided businesses through closure. While revival or recovery is the primary goal, the SBA guides businesses toward orderly closure in cases of lack of sustainability, capital exhaustion or deteriorating cash flow, and unmanageable debt levels. An independent bookstore in Buffalo, New York, was unable to continue operations due to the impact of COVID-19, competition from online bookstores, and large bookstore chains. During the closure process, the SBA assisted with contract termination, debt restructuring, and employee outplacement, enabling the business owner to close without financial burden.

Korea Focuses on Closure... "Objective Analysis by Experts and Cross-Ministerial Support Needed"

Korea also has support programs for small business recovery and closure, but most are focused on closure. The most prominent example is the Hope Return Package by the Korea Small Business Institute. Unlike the United States and Japan, where support is first provided for business recovery and, after expert diagnosis, closure is guided only if recovery is impossible, the Hope Return Package in Korea is centered on closure. Furthermore, while in the US and Japan, restructuring experts analyze overall management to make closure decisions, in Korea, such decisions are often made subjectively rather than based on objective management data.

Kim Kyungmin, Senior Research Fellow at the Korea Small Business Institute, analyzed, "Of the four programs in the Hope Return Package, three target small business owners who have closed or are planning to close, accounting for 79.5% of the budget. The focus is on closure rather than recovery from crisis, and in most cases, the decision to close is made based on the business owner's subjective judgment rather than objective management data."

Kim further noted, "Support for recovery and closure is dispersed among different agencies, such as the Small Enterprise and Market Service under the Ministry of SMEs and Startups for recovery and closure, and the Credit Counseling and Recovery Service for debt adjustment. Therefore, cross-ministerial support and the establishment of both short- and long-term measures are necessary."

Rising Defaults Among Small Businesses Add to Banking Sector Burden... Urgent Need for Integrated Support System

In particular, the increasing scale of loans and delinquency rates among small businesses in Korea is threatening the asset soundness of banks. This could spread as a risk factor throughout the financial market. This is why experts are increasingly calling for an integrated support system focused on recovery and revival, rather than simply supporting business closures.

According to the Bank of Korea, the outstanding balance of loans to small businesses rose from 887.5 trillion won in the third quarter of 2021 to 1,067.6 trillion won in the first quarter of 2025. Delinquency rates are also high. In particular, the delinquency rate among vulnerable small businesses reached 12.24% in the first quarter of this year. This is more than 26 times higher than the rate for non-vulnerable small businesses (0.46%) and is the highest level in 11 years and three quarters since 13.54% in the second quarter of 2013. The overall delinquency rate for the self-employed was 1.88% in the first quarter, the highest in a decade since 2.05% in the first quarter of 2015.

The increase in loan volume and delinquency rates among small businesses is a significant burden on banks. As borrowers' repayment capacity weakens, this leads to a decline in the loan loss reserve ratio. The loan loss reserve ratio is a key indicator of a bank's ability to absorb credit losses. A lower reserve ratio not only worsens asset quality but also reduces capital adequacy and shareholder returns, which can weaken dividend capacity and lead to falling stock prices.

The average loan loss reserve ratio for the four major commercial banks (KB, Shinhan, Hana, and Woori) was 169.78% in the first quarter, down more than 58 percentage points from about 228% in the same period last year. In particular, Woori Bank's reserve ratio for the first quarter plunged by 91.08 percentage points to 188.4% from 279.48% a year earlier. Hana Bank's ratio fell by 53.92 percentage points, Shinhan Bank by 48.67 percentage points, and KB Kookmin Bank by 39.27 percentage points.

Jang Eunjeong, Associate Research Fellow at the Policy Research Center of the Small Enterprise and Market Service, suggested, "In addition to cash support, it is necessary to implement various small business support programs that alleviate management burdens through fixed cost support and promote consumption. To provide robust support for micro-businesses, it is also important to establish a rational, selective support system, such as building a comprehensive small business database."