SMEs and Small Business Owners to Eliminate 'Early Repayment Fees' That Held Them Back

Small and Medium Business Ombudsman Agrees with 17 Local Governments to Exempt Policy Funds from Next Year
Eases Application Criteria and Designation Period for Water Supply Construction Contractors

[Asia Economy Reporter Kim Jong-hwa] Small and medium-sized enterprises (SMEs) and small business owners who have borrowed policy funds can now reduce their fee burdens and switch to loans with lower interest rates. Additionally, as the entry barriers for water supply construction contractors are lowered, the overall quality of the water supply system is expected to improve through fair competition.

This is because the 'Small and Medium Business Ombudsman (Ombudsman),' an independent institution that regularly and systematically addresses unreasonable corporate regulations and difficulties, identified such hidden regulations in local governments and, after consultations, decided to improve them by the end of this year.

The Ombudsman first decided to completely exempt SMEs and small business owners from early repayment fees, which are usually about 1% of the repayment amount charged by banks, if they repay their policy fund loans within three years.

Banks have been charging fees of 1.5% of the repayment amount within one year, 1.0% within two years, and 0.5% within three years when SMEs and small business owners repay loans early, to compensate for interest losses, stamp duties, registration taxes, and other administrative costs related to loans.

There were also significant regional differences. Banks received complaints from SMEs and small business owners asking, "Why are fees charged here when other places do not?" Among the 17 metropolitan local governments nationwide, Ulsan City did not charge any fees at all, but 11 cities and provinces including Seoul, Busan, and Gyeonggi partially exempted fees depending on the bank, collateral status, and repayment timing. However, five cities and provinces?Gwangju, Chungnam, Jeonnam, Jeonbuk, and Gyeongnam?did not offer any exemptions.

Accordingly, the Ombudsman promoted the exemption of early repayment fees for policy funds to support SMEs and small business owners who, despite increased demand for refinancing loans due to recent interest rate declines and policy fund supply related to COVID-19, could not switch to low-interest refinancing loans because of the burden of existing early repayment fees. An agreement was reached with 17 metropolitan local governments to exempt early repayment fees starting next year.

Ombudsman Park Joo-bong explained, "All 17 cities and provinces nationwide will revise agreements between local governments and banks by the end of this year to exempt early repayment fees on policy fund loans starting next year. Therefore, from next year, SMEs and small business owners borrowing policy funds from city and provincial governments will be able to manage their funds without early repayment penalties when they have surplus funds or switch to loan products with lower interest rates."

The entry barriers for water supply construction contractors were also lowered. Until now, there have been continuous criticisms that the designation of contractors in special and metropolitan cities caused unfair competition and disrupted fair competition order. In response, the Ombudsman, in consultation with local governments, relaxed the applicant qualification criteria for contractors to the level of water and sewage facility construction contractors by removing the area securing standard, setting capital at 150 million KRW or less, and requiring two technical personnel.

Additionally, the designation period for contractors was shortened from 3?5 years to less than 2 years, and after the period expires, re-designation will be conducted through public recruitment and evaluation. The system was also improved to refund interest on defect repair deposits and reduce designation fees.

Ombudsman Park said, "This is expected to increase the possibility of new companies entering the local water and sewage facility construction market and create a fair competition base, ultimately improving the overall quality of the water supply system. I hope this regulatory improvement will be of some help to SMEs and small business owners struggling due to COVID-19."

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