[The Tragedy of Small Business Owners] Average Debt of 130 Million Won... Turning to Family Rather Than Banks for Help

KB Financial Group Research Institute '2021 KB Self-Employed Report'
Average Loan Size for Small Business Owners in the Capital Area: 128.55 Million KRW
34% Borrow from Family or Acquaintances... More than Business Loans
Despite High Debt, 7 out of 10 Say "Willing to Take Additional Loans"

[Asia Economy Reporter Song Seung-seop] Since the COVID-19 pandemic, it has been revealed that smaller-scale small business owners have relied on family and acquaintances for funding rather than financial institutions or the government. This suggests that many small business owners are so marginal that they find it difficult to use formal financial services. Along with criticism that government and financial authorities' fiscal and financial support policies have not been effective, voices are emerging calling for practical measures to be established, as many hope for additional loans.

According to the "2021 KB Self-Employment Report ? Survey on the Impact of COVID-19 on Small Business Owners in the Seoul Metropolitan Area," published on the 22nd by KB Financial Management Research Institute, the average loan amount held by small business owners in the metropolitan area was 128.55 million KRW. Among them, 82% already had loans.

Funding was dependent on family and acquaintances. Small business owners who borrowed from family and acquaintances accounted for 34%, which was higher than those who obtained business-specific loans from financial institutions (31%). Only 37% used government policy fund loans targeted at small business owners. The most common type was personal credit or secured loans (50%) taken out by individuals rather than business operators.

In terms of amounts, the tendency to rely on family and acquaintances was even more pronounced. The average amount of personal credit or secured loans was 98 million KRW, the largest. Money borrowed from family and acquaintances was the second largest at 71 million KRW. Business-specific loans averaged 55.34 million KRW, and small business policy fund loans were only 33.8 million KRW.

More than half (51%) of small business owners said they "mainly consult with family and acquaintances" regarding financial conditions or related issues. Especially, the smaller the sales scale, the higher the rate of consulting with family and acquaintances. For sales over 300 million KRW, the proportion was about 44%, but for less than 60 million KRW, it was 55%. Only 17% consulted with specialized financial institutions such as banks. A significant number (16%) responded that they "have no one to consult."

Borrowing more and more... "Comprehensive financial support needed for vulnerable groups"

Although struggling with debt, demand for borrowing more money was high. Even though 8 out of 10 already had loans, 72% overall expressed willingness to take additional loans in the future. Among small business owners without loans (18%), 38% hoped to obtain new loans. By type, the most popular was the relatively low-interest small business policy fund loan at 55%, followed by business-specific loans at 34%. Personal credit/secured loans and borrowing from family and acquaintances recorded 20% and 10%, respectively.

The desired loan amount was 50 million to 100 million KRW for 30% of small business owners. Another 24% wanted to borrow about 30 million to 50 million KRW. Additional loans were intended mainly for business operating funds such as purchasing materials and labor costs (69%). Living expenses accounted for 47%, which was higher than key money, deposits, and interior costs (25%). Nearly half of small business owners are thus willing to take on more debt because they have no money to live on immediately.

Experts pointed out that this survey clearly revealed the reality of "vulnerable small business owners" and "insufficient financial support." It implies that small business owners who need tens of millions of KRW have deteriorated credit ratings to the extent that they find it difficult to use formal financial institutions, and that government and financial authorities' support policies to embrace them have been lacking.

Professor Kim Dae-jong of the Department of Business Administration at Sejong University said, "As small business owners hit by COVID-19 found it difficult to borrow money from financial institutions as business operators, they turned to acquaintances for help," adding, "Since the government and financial authorities offered limited amounts, it was unlikely to provide substantial help."

Professor Kim further advised, "To save small business owners, instead of distributing tens of thousands of won to everyone, policies that provide full financial support to those who are struggling and have nowhere else to turn are necessary."

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