Purpose of Supporting Small Business Owners with Medium-Low Credit
Special Measure for 4.5% Loan Replacement
Government to Relax Credit Scores Starting Next Month
‘Under the Yoon Suk-yeol administration, it has been revealed that the execution rate of the 500 billion won large-scale refinancing loan program, which is being operated to rescue small business owners in credit crises, has remained at a low 18.1% until the 10th of this month. Despite being a key project announced directly by President Yoon Suk-yeol at the end of last year, criticism has arisen among small business owners that the program is not very effective. This is because the loan conditions are not significantly favorable and the support conditions are overly strict. According to the data received by Lee Jong-bae, a member of the Industry, Trade, Energy, SMEs and Startups Committee of the National Assembly from the Small Business Market Promotion Agency on the 28th, the execution size from February, when applications were accepted, to this month for about 5 months, amounted to only 90.5 billion won, which is less than a fifth of the total.
This program allows medium-low credit small business owners to switch to a fixed 4.5% interest rate when they have taken out high-interest loans of 7% or higher or find it difficult to extend the maturity of their loans. It has been pointed out that the requirements are stringent, such as applying only to loans taken out before August 31st last year for business purposes and excluding household loans.
Furthermore, the loan amount is limited to only 50 million won (with repayment in installments over 10 years), and the interest rate difference is not significant enough to make a switch beneficial. For example, if you take out a 50 million won loan at 7% interest, you will incur an annual interest of 3.5 million won. Even if you switch to the refinancing loan program and apply a 4.5% interest rate, the annual interest will be 2.25 million won, resulting in only a 1.25 million won difference per year.
Last year, President Yoon attended the ‘2023 South Korea Small Business Expo’ as a sitting president for the first time and introduced special and comprehensive loan measures, including this one. However, with the results falling short of expectations, the government announced on the 3rd of last month that it would significantly relax the refinancing loan requirements through joint efforts of ministries and implement them from August.
Accordingly, the government has raised the eligibility criteria for support to include more small business owners by increasing the NCB individual credit score range from below 839 to below 919. The loan start date has also been extended from before August 31st last year to before July 3rd this year. The loan purpose restrictions have been lifted to include business purposes and household loans (up to 10 million won).
[An Jung-hoon, Reporter]