Special Loans of 148.5 Billion Won for Small Construction Firms Due to COVID-19, Urgent Need for Additional Support Measures

[Asia Economy Reporter Yoo In-ho] The Ministry of Land, Infrastructure and Transport announced on the 6th that the amount of special loans provided to construction companies struggling due to the novel coronavirus infection (COVID-19) has reached 148.5 billion KRW.

This special loan is a follow-up measure to the meeting held on the 12th of last month, where Minister Kim Hyun-mi of the Ministry of Land, Infrastructure and Transport discussed COVID-19 response measures with major public institutions, industry officials, and construction workers.

Since the 16th of last month, support has been provided through the Construction Mutual Aid Association and the Specialized Construction Mutual Aid Association. This special loan is implemented on an unsecured, low-interest basis (within 1.5%) with a scale of 480 billion KRW for the Construction Mutual Aid Association and 200 billion KRW (with an additional 100 billion KRW upon exhaustion) for the Specialized Construction Mutual Aid Association, until June 30.

According to surveys by the Mutual Aid Associations, mainly small-scale companies have received special loans and used them for actual expenses such as wage payments, equipment and material payments, and office operations. Among 1,464 construction companies supported by the Construction Mutual Aid Association, 1,179 companies had a capital contribution of less than 300 million KRW, and among 6,775 companies supported by the Specialized Construction Mutual Aid Association, 5,273 companies had a capital contribution of less than 100 million KRW.

Additionally, to support liquidity at construction sites, the effect of relaxing and applying the joint management system for advance payments by both Mutual Aid Associations was investigated to be 86 cases and 27.3 billion KRW during the same period.

The joint management of advance payments is a system where construction companies must submit an advance payment guarantee to receive advance payments from the client, and in this process, through an agreement with the Mutual Aid Association, which issues the guarantee, the construction company must obtain the Mutual Aid Association’s consent to use a certain amount of the advance payment.

However, there are criticisms that more government support is needed at construction sites. This is because the overseas construction market has been directly hit, and the domestic market is rapidly shrinking, especially in the private and housing sectors.

Large construction companies argue that the government should increase public sector orders along with special financial support to secure liquidity and maintain financial soundness.

Medium and small construction companies emphasize the urgency of survival. These companies are requesting local governments to promptly place public construction orders and expand participation of local construction companies. They argue that only by increasing local subcontracting rates through mandatory joint contracts in the region can small and medium-sized companies survive.

An industry official said, “There is a high possibility that COVID-19 will continue longer, making it even harder for construction companies,” and added, “The government should prepare not only short-term measures but also mid- to long-term plans.”

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