[Report] Small Business Owners Only Relying on 'Corona Loans'... "One Month? Even Surviving One Day Is Hard" (Comprehensive)

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

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 Hyo-jin and Kim Min-young] "Before getting a loan, I’m about to give up everything, including the store." On the afternoon of the 16th, Park Min-ho (39, male, pseudonym), whom the reporter met in front of a commercial bank branch in Mapo-gu, Seoul, sighed deeply as he confided this to the reporter. Park, who has been running a small variety store nearby for five years, said, "This is the hardest time in the five years. 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. They said it’s not something that can be done in just a week or two, so I don’t know how I can hold on."

Choi Ja-young (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." She has been running a restaurant in Seodaemun-gu, Seoul, for 12 years. Choi said her restaurant these days only gets a few lunch customers per day. She said, "I’m worried about this month’s rent first; it’s a big problem. I’m losing money every day," adding, "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 that the reporter visited that day were crowded with people like Park and Choi trying to get loans. Those the reporter met unanimously said, "Time is of the essence."

According to the Seoul Credit Guarantee Foundation, since the beginning of this month, about 1,700 phone and on-site consultations have been received daily, an increase of more than 40% compared to about 1,200 cases last month. On that day, by around 4 p.m., about 1,980 consultations had poured in. Nearby commercial bank branches usually receive about 20 consultations per day.

Currently, there are about 350 commercial bank branches in Seoul handling COVID-19 guaranteed loan consultations. Banks have processed about 13,500 cases so far. 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 banks’ entrusted tasks.

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

According to financial authorities, nearly 90% of the loan demand from companies and small business owners affected by COVID-19 is concentrated on guaranteed loans from credit guarantee foundations and similar institutions. Most small business loans rely on local credit guarantee foundations. These foundations act as guarantors for small business owners. Using the guarantee certificates issued by these foundations, loans are obtained from banks. The government’s plan is to have credit guarantee foundations focus as much as possible on screening tasks, while banks handle non-screening tasks such as consultation, guidance, document submission, and on-site inspections.

Financial authorities and others 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 foundations can carry out screening tasks. A representative from a commercial bank performing entrusted tasks said, "No matter how many entrusted tasks we take on, if screening takes a long time, the procedure won’t be drastically shortened," adding, "Once screening is done, loan disbursement takes only about two to three days at most."

Because of this, some argue that screening tasks should also be partially 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, "Building and smoothly operating such a system is estimated to take at least six months, so this option was excluded for now."

Local credit guarantee foundations have so far hired about 190 experienced personnel related to screening tasks on short-term contracts. The Korea Credit Guarantee Foundation Association explained that about 200 more will be hired and deployed for work. Major commercial banks are conducting practical discussions with the policy of dispatching personnel nationwide to credit guarantee foundations to assist with non-screening tasks.

There are also calls for banks to share the burden more actively. On the 16th, Kim Tae-hyun, Secretary General of the Financial Services Commission, held a meeting with financial holding company executives and urged efforts to reduce loan interest rates so that commercial banks can absorb some of the demand for low-interest loans from policy financial institutions, where bottlenecks are occurring.

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