"Relief from Financial Drought with Jungjingong Policy Funds"... 30 Daily Applications Submitted Continuously

Small and Medium Business Corporation
Policy Financing Support for Small and Medium Enterprises

An employee of the Small and Medium Business Corporation Gyeonggi Southern Branch (left) is explaining the policy fund application procedure to a business owner affected by COVID-19. / Photo by Small and Medium Business Corporation Gyeonggi Southern Branch

[Asia Economy Reporter Kim Daeseop] Lee Youngsoo (pseudonym), CEO of a small and medium-sized enterprise specializing in automobile parts painting and coating in Hwaseong, Gyeonggi Province, has seen his sales plummet by 40-50% over the past few months due to the suspension of operations at some factories in the finished car industry caused by the spread of the novel coronavirus infection (COVID-19). Although his company recorded sales of 3 billion KRW last year, if the current situation continues, annual sales this year are expected to be cut in half.

Lee’s company is a secondary supplier to domestic finished car manufacturers. He operated a leased factory but moved to the Hwaseong area two years ago and established his own factory. Approximately 800 million KRW was invested in facility costs. Bank loans amount to about 300 million KRW. Due to worsening financial conditions caused by COVID-19, he sought additional loans through banks but was unsuccessful. Lee stated, "We are facing many difficulties in management due to lack of funds. Fortunately, we applied to the Small and Medium Business Corporation and received 200 million KRW in working capital last March, which has greatly helped the company’s operations."

Company A, which supplies food ingredients to elementary, middle, and high schools, recently received a three-month repayment deferral on policy funds from the Small and Medium Business Corporation, providing some relief. With school openings delayed due to COVID-19, the company had zero sales for several months as it could not deliver food ingredients, but it has now overcome a critical period. The monthly cost for interest and principal payments on the working capital of over 100 million KRW received three years ago amounts to 6 million KRW.

Small and medium-sized enterprises are facing financial operation crises due to the spread of COVID-19, but the threshold for bank loans remains high. In this context, policy funds from the Small and Medium Business Corporation, a public institution under the Ministry of SMEs and Startups, are playing a role in easing financial pressure.

At the Gyeonggi Southern Branch of the Small and Medium Business Corporation located in Bongdam-eup, Hwaseong, Gyeonggi Province, about 20 to 30 applications for policy funds are received daily on average. The operating scale of policy funds (loans) at the Southern Branch this year is about 150 billion KRW. A representative from the Southern Branch said, "As a policy fund support institution, we are doing our best to support small and medium-sized enterprises to overcome the damage caused by COVID-19."

Source=Small and Medium Business Corporation

Recently, Company B, a performance planning specialist located in Gangnam, Seoul, also approached the Seoul Southeast Branch of the Small and Medium Business Corporation. This company’s sales sharply declined as the performance industry was hit hard by COVID-19. They needed operating funds, but since they operate in a leased business site, it was difficult to obtain bank loans, so policy fund support was necessary. The Seoul Southeast Branch decided to provide funding after screening, and 150 million KRW in working capital is scheduled to be disbursed within this week.

A representative from the Seoul Southeast Branch said, "In the COVID-19 crisis, applications for Small and Medium Business Corporation policy funds, which offer unsecured loans with lower barriers than commercial banks requiring collateral and guarantees, have surged," adding, "We will continue to strive to promptly supply liquidity to companies affected by COVID-19."

According to the 'COVID-19 Related Damage Survey by Industry for Small and Medium Enterprises' released this month by the Korea Federation of SMEs, 76.2% responded that they are 'suffering damage.' Both manufacturing and non-manufacturing sectors cited 'sales decline due to domestic demand contraction' and 'lack of operating funds and financial pressure' as the biggest damage cases. Furthermore, 41.9% selected 'establishing exemption measures for financial institutions to encourage bold lending' as the most needed support measure (multiple responses allowed).

Park Changsik (pseudonym), who has operated a small and medium-sized enterprise for 27 years, is going through difficult days as export routes are blocked by COVID-19, but he is making every effort to overcome the crisis with his employees while maintaining employment. Park’s business, located in Guro Digital Complex, Seoul, exports lubricants to Latin America and Southeast Asia. Last year’s export amount was 5.5 million USD. However, due to COVID-19, sales have decreased and cash inflows have been delayed simultaneously, resulting in poor financial conditions.

Park fears that sales this year will decrease by about 40% compared to last year. He lamented, "Cities in export countries are locked down, and overseas buyers cannot work normally, causing delays not only in new orders but also in payments for existing shipments."

Especially burdensome is the factory being built on an 8,264,000㎡ site in the national industrial complex in Seocheon, Chungnam Province, for new manufacturing business. Park said, "The total investment cost, including construction, is 3.5 billion KRW, but it is difficult to attract investment, and starting construction this month means immediate construction expenses are a burden. The guarantee certificate applied for at the Credit Guarantee Foundation has not yet been issued, making bank loans difficult." He added, "We have also applied for 500 million KRW in working capital support from the Small and Medium Business Corporation."

This year, the Small and Medium Business Corporation’s loan funds total about 5.69 trillion KRW. The interest rate for emergency management stabilization funds (disaster funds) is 1.9% per annum. In particular, for working capital, the maximum limit varies by business, but except for some funds, support is generally provided within 500 million KRW. The repayment period is within five years.

Professor Lim Chaeun of Sogang University’s Business Administration Department said, "The government needs to more boldly increase support through the Small and Medium Business Corporation’s policy funds," adding, "Also, during the difficult business period caused by COVID-19, it is necessary to significantly increase R&D budgets rather than loans so that companies can actively engage in research and development (R&D)."

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