"No Place to Stand at the Edge" Tears of Small Business Owners Frustrated by the Second Round of COVID-19 Loans (Comprehensive)

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

On the 21st, as the novel coronavirus infection (COVID-19) resurges, increasing difficulties for small business owners, a banner announcing business closures is hung in the Goyang Furniture Complex in Gyeonggi Province. Photo by Moon Honam munonam@

[Asia Economy Reporter Kangwook Cho] "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 announced by the government 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 post was recently uploaded on the Blue House's public petition board under the title "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 had 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.

350 Billion KRW Loan Executed in 5 Business Days After Revision... Document Submission Not Accepted, 'Hope Torture'

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 one week after 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 increased 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 range decreased from 3.05?4.99% per annum as of May 25 to 2.46?4.99% as of September 21. Sohn Byung-doo, Vice Chairman of the Financial Services Commission, self-assessed that "it seems to be helping to alleviate the financial difficulties of 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 "hope torture." They complain that low-credit borrowers are not even allowed to submit documents, and they cannot understand 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 was expected to allow even low-credit borrowers with credit grades below 7 to receive loans from banks because the Korea Credit Guarantee Fund guarantees 95% of the loans. However, loan rejections are still frequently occurring at bank branches, including for medium-credit borrowers.

Special Guarantee for COVID-Affected Small Business Owners, Only 1.8% Support for Below Grade 7

According to data submitted by the Ministry of SMEs and Startups to Kim Kyung-man, a member of the National Assembly's Industry, Trade, and SMEs Committee from the Democratic Party, the Ministry and regional credit guarantee foundations have provided 14.0781 trillion KRW (547,093 cases) in support funds to small and medium enterprises and small business owners through special guarantee projects over the past five years. However, only 376.9 billion KRW (30,665 cases), or 2.7% of the total, was provided to low-credit borrowers with grades below 7.

In particular, for the "COVID-19 Affected Small Business Owners Support Special Guarantee," the amount supported until July this year was 8.7394 trillion KRW (319,353 cases), of which 6.2101 trillion KRW (71.1%) was allocated to the highest grades (1?3). In contrast, the share for the lowest grades (below grade 7) was only 157.7 billion KRW (12,510 cases), accounting for 1.8% of the total.

It was found that 54,261 special guarantee applications were rejected. Excluding "voluntary withdrawal" (41,891 cases), the most common reason for rejection was "exceeding the limit" with 6,551 cases, followed by "holding delinquency or other bad information" with 3,454 cases. This raises questions as to whether support funds were effectively distributed based on credit grades, contrary to the original intent to support regardless of credit rating.

"Received 1st Support but Disqualified for 2nd... All Should Be Supported by Differentiating Interest Rates and Limits"

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 is almost 5%," adding, "I was even told that if it’s not urgent, it might be better to cancel." He lamented that despite having only one existing loan supported at a 2% interest rate under the first program, he was evaluated as disqualified based on income, wealth, assets, and transaction records.

The small business owner who posted the petition concluded, "I don’t dream of reckless demands for support funds, tax exemptions, or rent payments, but the internal bank screening that looks at credit grades, existing loans, bank transaction records, and even parents’ assets does not seem like a support policy loan," and pleaded, "I earnestly hope that you change it so that all small business owners can have a last hope by excluding credit delinquents and differentiating interest rates or limits."

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