Low-Credit Borrowers Unable to Even Dream of a Second COVID-19 Loan

3.5 Trillion KRW Executed Within One Week of Revamp
Rejections Common Even for Mid-Credit Borrowers in Grades 5 and 6

On the 23rd, the second loan limit for small business owners struggling due to the COVID-19 crisis will be increased to 20 million won. Small business owners who have already received the first loan can also apply for additional loans. According to the Financial Services Commission, the government has expanded the support limit and scope through the 'Expansion and Reorganization of the Small Business Financial Support Program' to provide up to 20 million won in additional support to small business owners. The photo shows a small business owner receiving loan consultation at Shinhan Bank in Seoul on the same day. Photo by Moon Honam munonam@

[Asia Economy Reporter Jo Gang-wook] "Out of six banks, only one accepted documents for low-credit borrowers, and even then, they only said they would try to accept the documents. This was a policy the government introduced to save small business owners, so trusting it, I borrowed small amounts here and there to fully pay off overdue national and local taxes and prepared the documents, but beyond disappointment, I felt like dying."

This is a post recently uploaded on the Blue House's public petition board titled "The second round of COVID loans that killed small business owners with no place to stand twice."

Although the small business owners' second financial support program, which sparked controversy over its low limits and high interest rates, has gained momentum by executing loans worth about 350 billion KRW within a week of its revision, criticism remains that low-credit borrowers are still being neglected. It is even reported that loans for medium-credit borrowers with grades 5 to 6 are frequently rejected.

According to financial authorities on the 8th, the revised second support program, which raised the loan limit from 10 million KRW to 20 million KRW and allowed overlapping benefits, executed loans totaling 351.5 billion KRW during the week from September 23 to 29, just after its implementation. This amount accounts for nearly half of the support provided over the past four months (about 670 billion KRW) in just five business days.

The average daily approved amount also surged nearly tenfold from 7.42 billion KRW between May 19 and September 22 to 70.3 billion KRW between September 23 and 29. Especially on September 29, just before the Chuseok holiday, 159.38 billion KRW was supported in a single day. The Financial Services Commission announced that the interest rate level dropped from an annual 3.05?4.99% as of May 25 to 2.46?4.99% as of September 21. Son Byung-doo, Vice Chairman of the Financial Services Commission, self-assessed that "it seems to be helping alleviate financial difficulties for small business owners compared to the early days of the system's implementation."

However, among small business owners, there is a cold response calling it "false hope." They complain that low-credit borrowers are not even allowed to submit documents and express frustration over why each bank has different screening criteria and why loan officers make different judgments on government policy loans.

The second support for small business owners is backed 95% by the Korea Credit Guarantee Fund, so there were expectations that even low-credit borrowers with credit grades below 7 could get loans from banks. However, loan rejections, including for medium-credit borrowers, are still frequently occurring at bank branches.

One small business owner said, "I applied for the second loan, and although my personal credit grade is 1, my business grade is 6, so including guarantee fees and commissions, the interest rate almost reaches 5%," adding, "I was even told that if it’s not urgent, it might be better to cancel." He lamented that his only existing loan was supported at a 2% interest rate under the first program, but he was evaluated as ineligible based on income, wealth, assets, and transaction records.

The small business owner who posted the petition concluded, "I never dreamed of demanding reckless support funds, tax exemptions, or rent payments, but the internal bank screening that looks at credit rating, existing loans, bank transaction records, and even parents' assets does not seem like a support policy loan," and earnestly requested, "Please change it so that all small business owners can have a last hope, even if it means excluding credit delinquents and applying different interest rates or limits."

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