[Report] "'Corona Loan' Takes a Month? Might Die Before That" ... Desperate Small Business Owners

High Demand for Credit Guarantee Foundation-Backed Loans Causes Overload
Separation of Screening and Non-Screening Tasks Still Insufficient

A temporary closure notice posted at a store in Jung-gu, Seoul, due to the spread of the novel coronavirus infection (COVID-19). / Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporters Kim Hyojin and Kim Minyoung] "Before getting a loan, I’m about to give up everything, including the store." On the afternoon of the 16th, Park Minho (39, male, pseudonym), whom the reporter met in front of a commercial bank branch in Mapo-gu, Seoul, sighed as soon as he saw the reporter. Park, who has been running a small variety store nearby for five years, said, "Since the COVID-19 outbreak, sales have dropped to one-third, and I was thinking of closing the store, but I came to try to get a small business loan. Now that they say it won’t be approved within 1-2 weeks, I don’t know how I can hold on."

Choi Jayoung (52, female, pseudonym), who was coming out after receiving loan consultation at the Seoul Credit Guarantee Foundation located in the adjacent building, said, "I’m on my way because the bank said they would handle all the paperwork." Choi, who has been running a restaurant in Seodaemun-gu, Seoul for 12 years, said, "I only get a few lunch customers a day," and complained, "I have no choice but to beg to borrow money as soon as possible."

As the COVID-19 crisis deepens the worries of small business owners day by day, the Seoul Credit Guarantee Foundation and nearby bank branches visited by the reporter that day were crowded with people like Park and Choi trying to get loans. They all said in unison, "We are struggling to survive day by day."

According to the Seoul Credit Guarantee Foundation, about 1,700 telephone and on-site consultations are received daily on average this month. This is more than a 40% increase compared to about 1,200 cases last month. The entrusted tasks handled by banks so far amount to about 13,500 cases. Nationwide, banks have assisted with about 24,200 cases. This is the result of the financial authorities and the Ministry of SMEs and Startups significantly expanding the scope of entrusted tasks for banks. According to the financial authorities, nearly 90% of the loan demand from companies and small business owners affected by COVID-19 is concentrated in guaranteed loans through institutions like the Credit Guarantee Foundation.

On the 16th, citizens were waiting to receive consultation for guaranteed loans at the Mapo branch of the Seoul Credit Guarantee Foundation.

The Credit Guarantee Foundation is an institution that acts as a guarantor for small business owners. Using the guarantee certificates issued here, loans are obtained from banks. The government’s plan is to have the Credit Guarantee Foundation focus as much as possible on the screening process, while entrusting non-screening tasks such as consultation, guidance, document submission, and on-site inspections to banks.

Financial authorities expect that once the tasks received before this system is fully operational are somewhat processed, loan execution could be possible within about two weeks. The key is how quickly the Credit Guarantee Foundation can carry out the screening process. A representative from a commercial bank performing the entrusted tasks said, "Once the screening is completed, it takes only 2-3 days at most to execute the loan."

For this reason, some argue that the screening tasks should also be delegated to banks, but this is considered unrealistic. A representative from the Korea Credit Guarantee Foundation Association said, "To screen guaranteed loans, it is necessary to verify the applicant’s loan and repayment history through electronic data exchange with other policy financial institutions," adding, "It is understood that building and smoothly operating such a system would take at least six months, so this option has been excluded for now."

Major commercial banks plan to dispatch personnel nationwide to the Credit Guarantee Foundation to assist with non-screening tasks. Kim Taehyun, Secretary General of the Financial Services Commission, held a meeting with financial holding company executives on the 16th and urged efforts to reduce loan interest rates so that commercial banks can absorb some of the loan demand for low-interest funds from policy financial institutions, where bottlenecks are occurring.

This content was produced with the assistance of AI translation services.