SME Mutual Aid Fund Launches Local Government Interest Subsidy Loan Program

Up to 3% Reduction in Loan Interest Rates
Easing Financial Burden for SMEs

The Korea Federation of SMEs announced on January 12 that it has signed interest subsidy support agreements with metropolitan and local governments nationwide-including Goyang, Chuncheon, Wonju, Cheonan, and Pocheon-to provide interest-subsidized loans to small and medium-sized enterprises (SMEs) and small business owners struggling with sluggish domestic demand.

The local government interest subsidy loan program provides annual interest support of 1-3% to companies enrolled in the SME Mutual Aid Fund when they apply for a loan. Last year, 3,100 companies utilized a total of 254 billion won in local government interest-subsidized loans, receiving approximately 2.4 billion won in interest support.

This year, a budget of 2.4 billion won has been secured, and the program has been implemented since January (for companies located in Seoul, implementation will begin in February). The Federation plans to continue expanding the program through meetings and consultations with local governments so that more enrolled companies can benefit.

The SME Mutual Aid Fund was established in 1984 under the 'Small and Medium Enterprise Cooperatives Act' as a mutual aid system for SMEs, aiming to prevent bankruptcies and stabilize business operations. Loans are supported using mutual aid contributions paid by SME members.

Depending on their credit rating, members can obtain unsecured (working capital) loans of up to three times their contribution balance at an average interest rate of 5.6%. When local governments provide up to 3% in interest subsidy support, the interest burden can be reduced to as low as 2.6%. Currently, approximately 17,500 SMEs and small business owners nationwide are enrolled, and loan support has been expanded each year, with about 744.2 billion won provided last year alone.

Lee Changho, Head of the Mutual Aid Business Division at the Korea Federation of SMEs, stated, "We plan to actively improve the system to provide practical financial support to SMEs and small business owners facing prolonged sluggish domestic demand," and added, "We will continue to advocate for expanded interest subsidy support from the government and local authorities."