Just Apply and Get It All? ... Small Business Owners Likely to Experience Speedy Second Loan Process

Applications Open from the 18th
Credit Guarantee Fund Provides 95% Guarantee
Loan Rejection Expected to Minimize

[Asia Economy Reporter Kim Hyo-jin] The government's second emergency loan application and reception for small business owners affected by the novel coronavirus infection (COVID-19) will begin on the 18th.

Since most of the loan amount is guaranteed by policy financial institutions and all small business owners are eligible regardless of their credit rating, it is expected that cases of loan rejection will be very rare. This is why a 'loan application speed race' is anticipated among small business owners who could not use the first emergency loan program or whose business conditions have rapidly deteriorated recently and urgently need funds.

According to financial authorities and the financial sector on the 11th, 95% of the second emergency loan amount for small business owners will be supplied with guarantees from the Credit Guarantee Fund, a policy financial institution. For example, if a small business owner borrows 10 million won, the Credit Guarantee Fund guarantees 95% of that amount, which is 9.5 million won. The bank only bears the risk for the remaining 500,000 won.

A financial authority official predicted, "Unless there is a clear reason, loans will hardly be rejected at frontline counters."

For the first emergency loan executed until early this month, high-credit borrowers (credit grades 1-3) were directed to commercial banks, medium-credit borrowers (grades 4-6) to Industrial Bank of Korea, and low-credit borrowers (below grade 7) to the Small Enterprise and Market Service (SEMAS) for loan applications.

There were quite a few cases where medium- and low-credit borrowers wasted time knocking on the doors of commercial banks and ultimately missed the opportunity due to loan rejection.

Although the threshold for the second emergency loan has been significantly lowered, those with a history of loan delinquency or tax arrears will not be eligible. In such cases, overdue payments or arrears must be resolved before applying for the loan. If the delinquency or arrears are due to the COVID-19 situation, the loan may still be possible.

If you received the first emergency loan, you cannot receive the second emergency loan. The total fund for the second emergency loan is 10 trillion won. The loan limit is 10 million won, and medium-credit borrowers can use it at an interest rate in the 3-4% range.

The opportunity for a 3.5 trillion won scale commercial bank interest subsidy loan (1.5% interest rate) targeting credit grades 1-3 still remains. Fourteen banks are participating, and except for Woori Bank, which plans to close applications on the 15th, most funds are expected to be exhausted by early next month.

As of the 7th, the interest subsidy loan amount from the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?was about 1.175 trillion won. Some regional banks are understood to have lending capacity beyond early next month.

However, medium- and low-credit small business owners with credit grades below 4 are finding it difficult to find appropriate policy alternatives until the second emergency loan is implemented. Some in the financial sector suggest that the government’s emergency disaster relief funds, which will be released to the market starting the 13th, may provide some breathing room for small business owners.

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