Starting in March next year, the banking sector will provide tailored support to small business owners facing difficulties in loan repayment even before falling into arrears, including debt restructuring and additional funding. Financial authorities estimate that the interest burden for 250,000 small business owners will decrease by up to 700 billion won annually. The total support over three years is expected to be around 2.1 trillion won.
On the 23rd, Chairperson Jo Yong-byeong of the Korean Bankers Association and the heads of 20 banks held a meeting at the Korean Bankers Association building in Jung-gu, Seoul, to announce financial support measures for small business owners. Participants included Commissioner Kim Byung-hwan of the Financial Services Commission, Minister Oh Youngju of the Ministry of SMEs and Startups, and Director Lee Bok-hyun of the Financial Supervisory Service.
◇ Support for partitioning repayment for up to '10 years' even before arrears
Banks will pursue debt restructuring for small business owners facing repayment difficulties even before going into arrears, offering options such as long-term partitioning repayment for up to 10 years, maturity extensions, and interest rate reductions.
The support targets include ▲ borrowers at risk of arrears ▲ borrowers in financial distress due to shutdowns ▲ borrowers with continuous arrears of less than 90 days. Borrowers at risk of arrears are defined as those with a credit rating of 6 or lower, a cumulative bank arrears of more than 30 days within the last 6 months, or individual business owners representing low income (annual income of 35 million won) or low credit (bottom 10% of credit scores).
In addition to individual business owners, 'corporate' small businesses are also included in the eligibility criteria. Corporate small businesses must have had sales of less than 2 billion won in the previous year, total assets of less than 1 billion won, and total bank loans of less than 1 billion won. Industries such as entertainment establishments, gambling machines, and unhealthy gaming device manufacturing are excluded.
Commissioner Kim Byung-hwan noted, 'The government is implementing debt restructuring and a new startup fund of 40 trillion won to support small business owners in arrears, but systematic support for those who have faithfully paid their interest has been somewhat lacking,' adding that 'this could fill the gap in sustainable financial support for small businesses.'
◇ For those who have closed down, partitioning repayment at an annual interest rate of 3% for up to 30 years
Additionally, a 'low-interest, long-term partitioning repayment program' has been introduced to extend loan maturities up to 30 years for those who have closed their businesses. This initiative aims to help small business owners who can no longer operate their businesses to wind down without significant burden and repay their remaining loans gradually.
The support targets include individual business owners who are currently repaying loans normally without arrears. For credit loans, a remaining balance of up to 100 million won can have the maturity extended for up to 30 years, while amounts exceeding 100 million won can extend for up to 10 years. For guaranteed loans, the maximum extension will be 7 years for amounts up to 100 million won and 5 years for amounts exceeding 100 million won. Collateral loans can have a maturity extension of up to 10 to 30 years without amount restrictions.
The interest rate will be around 3% for loan balances within 100 million won (5-year variable financial bond). Currently, the average interest rate for individual business owner credit loans is around 6%. If the balance exceeds 100 million won, no interest rate reduction benefits will apply. The application period is for three years from the date of enactment. After implementation in March next year, applications will be accepted until March 2028.
◇ Additional loan of up to 20 million won for those willing to restart
For small business owners willing to restart and enhance their competitiveness, arrangements will be made to allow borrowing of up to 20 million won in collaboration with guarantee institutions through the 'small business co-prosperity guarantee and loan program.' The key content includes supplying new working capital guaranteed loans to vulnerable small business owners using the bank's debt restructuring program through 'Sunshine Loan 119.'
The support target is individual business owners with annual sales of 300 million won or less who have been using this program for more than six months. The additional loan limit is up to 20 million won (an additional 10 million won after six months of diligent repayment on a 10 million won loan), with an interest rate ranging from 6% to 7%.
A 'small business growth guarantee loan' will also be launched. This is a trust guarantee loan that banks contribute 100 billion won to annually for their own screening. The loan limit is 50 million won for individual business owners and 100 million won for corporate small businesses, with a maximum partitioning repayment period of 10 years (with a maximum of 3 years of grace period).
Lastly, tailored services will be provided through 'bank financial doctors' who will conduct market analysis and offer financial and management consulting based on each main bank.
Meanwhile, the Financial Services Commission projected that debt restructuring would reduce the interest burden for 100,000 people (5 trillion won in loans) by about 121 billion won annually. This amounts to approximately 1.21 million won per borrower each year. Support for closed businesses is estimated to alleviate the interest burden for another 100,000 people (7 trillion won) by about 315 billion won annually. Additionally, it is anticipated that around 50,000 people will receive approximately 200 billion won in new funds.