Banks say, "Small Business Funding Issues Must Be Solved Through 'Loan First, Guarantee Later' Procedure"

Serious Delay in Local Newspaper Review Process

Eun Sung-soo, Chairman of the Financial Services Commission (left), visited a branch of Woori Bank on the 17th to check the status of financial support measures in response to COVID-19. Photo by Financial Services Commission

[Asia Economy Reporter Kwon Haeyoung] "We have done everything regarding small business loans. The banks have shortened their own loan screening period to 1-2 days, and personnel have even been dispatched to the Regional Credit Guarantee Foundations. We don't know what else to do." (A bank loan officer)

There are urgent calls for drastic simplification of procedures such as 'loan first, guarantee later' for small self-employed business owners seeking loans related to the novel coronavirus disease (COVID-19). Despite facing financial difficulties due to COVID-19 and being on the brink of collapse, small business owners find it nearly impossible to get loans because of delays in screening by guarantee institutions, even with the government's emergency fund support. The banking sector insists that active participation from local governments, which control the budgets of regional credit guarantee foundations, is essential to resolve the bottleneck in screening operations.

According to the financial sector on the 24th, out of 200,000 loan applications submitted by self-employed individuals to regional credit guarantee foundations nationwide, only 10% of guarantee certificates have been issued, and the remaining 180,000 loans are still delayed in screening.

Banks execute loans based on guarantee certificates from regional credit guarantee foundations. As the workload of regional credit guarantee foundations has increased, banks have been entrusted with tasks such as guarantee applications and reception. However, the screening process, which takes the longest time, is solely handled by the regional credit guarantee foundations, causing loan delays.

A representative from a commercial bank said, "If we have the guarantee certificate from the regional credit guarantee foundation, the bank can complete the loan execution within a day or two. But since the guarantee institution delays issuing the certificates, loans are not being executed, which frustratingly makes it seem as if banks are refusing loans to small business owners."

Initially, some suggested that regional credit guarantee foundations should outsource screening tasks to banks. However, for guarantee-backed loans based on policy funds, it is necessary to verify loan histories and repayment records from other policy financial institutions, and building and operating this system within banks would take about six months, according to related agencies. The Korea Credit Guarantee Foundation, which oversees regional credit guarantee foundations, has hired retired personnel to assist with screening, and banks such as Kookmin, Woori, and Hana have dispatched staff to regional credit guarantee foundations, but these efforts remain insufficient.

The financial sector suggests that to help self-employed individuals struggling in the rapidly cooling economy benefit from government policy fund injections, banks should first execute loans, and regional credit guarantee foundations should issue guarantee certificates one or two months later, simplifying the screening process.

A banking official said, "Regional credit guarantee foundations should consider skipping loan screening for existing clients or those with credit ratings, assets, and income above certain thresholds." He added, "For small business owners who receive a 'free pass,' banks can first execute loans, and guarantee institutions can issue certificates after post-screening one or two months later. It is expected that few small business owners meeting certain criteria will suddenly go bankrupt within one or two months, so emergency funds should be provided to put out the urgent fire."

However, active participation from the Ministry of SMEs and Startups and local governments is a prerequisite. The Korea Credit Guarantee Foundation is under the Ministry of SMEs and Startups, and regional credit guarantee foundations are under local governments. Particularly, local governments, which hold all personnel and budget authority over regional credit guarantee foundations, must make decisive actions.

A financial sector official emphasized, "Due to loan delays, local small business owners are on the verge of closure, but local governments, which hold actual authority, are avoiding responsibility and acting passively. As the real economy rapidly contracts due to COVID-19, we must actively consider pre-loan guarantees to help the most affected small business owners endure the hardship."

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