COVID-19 SME Damage 'Snowballing'... "Much Larger Than the Foreign Exchange Crisis"

Korea Federation of SMEs 3rd Survey
64.1% of SMEs "Business Impacted by COVID-19"
Recommendations to Lower Minimum Tax Rate

Kim Ki-moon, President of the Korea Federation of Small and Medium Business (center), is announcing the results of an urgent survey on the management status of small and medium enterprises related to COVID-19 at a meeting held on the 26th at the Federation's office in Yeouido, Seoul.

[Asia Economy Reporter Kim Daeseop] #Small and medium export company A. Due to the novel coronavirus infection (COVID-19), overseas buyers have repeatedly canceled or postponed product orders, resulting in a 30% decrease in sales this month compared to the same month last year. Especially, if the 'shutdown' situation in Western Europe and the United States, where COVID-19 fear has gripped, prolongs, the situation will be more serious. The sales proportion of Western Europe and the United States accounts for 80% of total sales, raising great concerns about a significant sales impact. The company's representative lamented, "Many overseas clients have lost contact due to shutdowns caused by the spread of COVID-19," adding, "If this situation continues, sales will plummet by 70-80% starting next month." This company exported pet products to over 60 countries last year, achieving sales of 6 billion KRW.

#Ban-yeo Agricultural Wholesale Market Shopping Mall Business Cooperative located in Busan is also suffering great damage due to COVID-19. It is difficult to secure funds even when needed. Kim Joongsin, chairman of the Ban-yeo Agricultural Wholesale Market Shopping Mall Business Cooperative, said, "The area around the market is a COVID-19 outbreak zone, so people do not come, and many stores cannot even make 100,000 KRW a day," adding, "When I went to the bank to extend the maturity loan, they told me to bring a guarantee letter from the local credit guarantee foundation, but when I visited the foundation, they said there were over 500 applications waiting and told me to go back to the bank. In reality, it is difficult to borrow even a few million KRW on site."

◆ 6 out of 10 SMEs 'Suffer Management Damage' = The damage to domestic small and medium enterprises (SMEs) due to the spread of COVID-19 is severe. According to the 'Emergency Survey on the Management Status of SMEs Related to COVID-19' announced by the Korea Federation of SMEs on the 26th, 64.1% of SMEs reported suffering management damage due to the spread of COVID-19. This is an increase compared to the first survey (34.4%) conducted in early last month by the Federation and is similar to the second survey (70.3%) conducted at the end of last month.

Kim Kiwon, chairman of the Korea Federation of SMEs, said at a press conference held at the Federation's office in Yeouido, Seoul, "To assess the damage situation of regional SMEs caused by COVID-19 and to identify what support measures are needed on site, we held seven meetings nationwide starting from Busan on the 19th," adding, "Although the damage situation and atmosphere differ by region, many SME owners are worried that the damage is much greater than during the 1997 foreign exchange crisis or the 2008 global financial crisis, and that it is difficult to prepare countermeasures."

The third SME management status survey announced this time was conducted from the 17th to the 20th of this month targeting 407 SMEs. Looking at the details, 63.4% of manufacturing companies suffered management damage. In the service sector, 64.8% (67.1% in wholesale/retail and food/accommodation, 63.3% in other services) reported damage. When asked about enduring the current COVID-19 situation, 42.1% of companies responded that they cannot endure for more than three months. The percentage of companies that cannot endure for more than six months reached 70.1%.

Regarding the current perceived economy, 76.9% responded that it has worsened compared to before the spread of COVID-19. By industry, the service sector had a higher proportion of respondents reporting 'worsened' at 80.2% compared to manufacturing at 73.7%.

Chairman Kim emphasized, "Export companies are struggling due to the spread of COVID-19 worldwide. They complain that orders are canceled even after being received or that shipments cannot be made even after production is completed. Measures for this part are also necessary."

◆ Financial Support Needed for 'Prompt Loan Execution' = According to the Korea Federation of SMEs' survey on the most needed government support by sector, in the financial field, inducing private financial institutions to lower interest rates (35.9%) and special support without guarantee limits for companies urgently needing working capital (31.4%) were selected. In the tax field, lowering income tax and corporate tax rates for SMEs (68.8%) was chosen, and in the employment field, expanding the support limit and easing requirements for employment retention subsidies (65.6%) were identified.

In the small business sector, expanding social insurance support for micro small business owners (44.0%) and providing quarantine and business suspension compensation for micro small business owners (43.2%) were urgent measures. In the sales channel sector, expanding the purchase target ratio of small and medium enterprise products by public institutions (46.7%) and expanding advance payments for large company deliveries (36.4%) were identified as the most necessary policies.

Chairman Kim said, "In the field, delays in fund execution and policy delivery caused considerable anxiety and inconvenience for SMEs and small business owners facing liquidity crises," adding, "Looking at the history of banks in our country, there have been many failures due to dealings with large companies, but none due to dealings with SMEs and small business owners. It would be good to expand financial support without hesitation during difficult times." He further proposed, "For micro small business owners who cannot afford payments due to sharp sales declines, 100% support should be provided, and for medium-sized companies, support should be increased up to 80%."

At the meeting, the Korea Federation of SMEs proposed 17 policy tasks in five major areas for SME damage recovery and economic revitalization: ▲finance and taxation ▲small business owners ▲labor ▲sales channels and coexistence ▲smart factories, certification, and environment.

They requested ▲lowering the minimum tax rate for SMEs (from 7% to 5%) ▲expanding social insurance support for micro small business owners ▲expanding employment retention subsidies and simplifying requirements and procedures ▲increasing the purchase target ratio of SME products by public institutions (from 75% to 85%) and early ordering ▲temporary exemption of environmental burden charges for SMEs.

In particular, they appealed for active financial support, such as strengthening post-management to enable prompt execution at loan sites like banks and allowing additional loans regardless of existing loan status.

Chairman Kim emphasized, "Companies are the source of production, investment, household income, and consumption, and jobs can be maintained only if companies survive," adding, "We will do our best to quickly grasp the damage situation on site, develop policies, and help small business owners and SMEs overcome the crisis through promotion of support measures and strengthening post-management."

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