The government is expanding low-interest loan opportunities for small business owners, but the share that actually leads to loan execution appears to be around 20%.
There are views that the fundamental solution is to increase manpower and the budget of the Korea Small Enterprise and Market Service (SEMAS) and have it handle direct screening and execution of loans.
According to data submitted by the Ministry of SMEs and Startups to Democratic Party of Korea lawmaker Jeong Jin-uk's office, a member of the Trade. Industry Energy. SMEs. and Startups Committee, on the 5th, SEMAS issued 275,256 "confirmation letters for eligibility for small business policy funds" last year. However, the number of loans executed was only 63,275.
From January to September this year, 244,521 confirmation letters were issued, while the number of loans executed was only 68,260. The loan execution rate compared with the total number of issuances was calculated at about 28%.
The Ministry of SMEs and Startups operates policy funds such as general operating capital loans and refinancing loans to ease the burden on small business owners. A refinancing loan converts a loan that a small business owner holds with a high interest rate or for which it is difficult to extend the maturity into a low-interest loan in the mid-4.5% range per year.
If SEMAS issues a confirmation letter proving that the applicant is a small business owner, banks handle the screening and execution of policy fund loans based on it. The Ministry of SMEs and Startups bears the expense such as interest support or fees.
However, even if selected as eligible for policy funds, loan approval does not immediately follow. Even with a confirmation letter, internal screening standards differ by bank, and some require additional documents. There are many documents to prepare, and there are even firms that help with this.
A commercial bank official said, "Even if the government issues a confirmation letter, from the bank's standpoint we have to reassess each individual's creditworthiness and repayment ability," and added, "Policy funds are intended for business purposes, but there are cases where people try to convert personal loans into refinancing loans, so there are instances where loan execution does not proceed."
One small business owner said, "Refinancing loans certainly reduce the interest burden, but the procedures are complicated, so it was not easy to prepare alone," and "there are even places that provide consulting for this and charge fees."
Given this situation, a plan is being floated to expand SEMAS's capacity in charge of the task to raise the perceived effectiveness of loans for small business owners.
Currently, due to a lack of manpower and budget, screening and execution are entrusted to banks, which lowers the execution rate compared with issuances and causes confusion due to differences in internal screening standards by bank. The idea is that consistent standards—such as repayment ability or business progress—should be set so that loans are executed for small business owners who need policy funds.
Jeong Jin-uk said, "This is a case where the government's 'low-interest support policy' is neutralized in the field," and noted, "The fact that only 20% to 30% actually lead to loan execution means there is almost no on-the-ground impact, undermining the original purpose of the system."
He continued, "We need to expand manpower and the budget so that SEMAS can directly handle screening and loan execution," and emphasized, "The system should be reformed to strengthen SEMAS's capabilities and practically resolve the urgent funding crunch of small business owners."