Over 100 Million Debt but "Hoping for Additional Loans"... Small Business Owners with No Support (Comprehensive)

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, Exceeding Business Loans
Despite High Debt, 7 out of 10 Express Willingness for Additional Loans

The spread of COVID-19 and the strengthening of quarantine measures are deepening the worries of self-employed workers. An employee is wiping a table at a restaurant in Jung-gu, Seoul. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Song Seung-seop] It has been revealed that small business owners are borrowing money from family and acquaintances rather than financial institutions or the government. This suggests that many small-scale businesses find it difficult to use formal financial services, and that the support measures provided by the government and financial authorities have not been effective. This phenomenon is more pronounced among smaller-scale small business owners. Since the majority of small business owners are not financially comfortable enough to seek additional loans, there are calls for effective countermeasures to be introduced.

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 Group Management Research Institute, the average loan size held by small business owners in the metropolitan area was 128.55 million KRW. Among them, 82% already had loans.

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

In terms of amounts, the tendency to rely on family and acquaintances was even more pronounced. The average size of personal credit or secured loans was 98 million KRW, the largest amount. Money borrowed from family and acquaintances was the second largest at 71 million KRW on average. Business operator-exclusive 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 matters or funding issues. Especially, the smaller the sales scale, the higher the proportion consulting family and acquaintances. For sales above 300 million KRW, the proportion was about 44%, but for sales below 60 million KRW, it was 55%. Only 17% of small business owners consulted with specialized financial institutions such as banks. A significant number (16%) responded that they had "no one to consult."

Despite struggling with debt, demand for additional borrowing was high. Although 8 out of 10 already had loans, 72% overall expressed willingness to take out 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 operator-exclusive loans at 34%. Personal credit/secured loans and borrowing from family and acquaintances accounted for 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 would be used mainly for business operating funds such as purchasing materials or paying labor costs (69%). Living expenses accounted for 47%, which was higher than key money, deposits, or interior costs (25%). Nearly half of small business owners were willing to take on more debt because they had no money to live on immediately.

Want to repay interest quickly... "Comprehensive financial support measures are needed"

Nevertheless, there was a strong tendency to view loan interest as a cost and to repay loans as quickly as possible. This is the result of sharply rising interest rates amid urgent funding needs. Sixty-five percent of small business owners believed it was better to repay loans whenever they had spare funds. This was twice the number of those who thought it was better to secure funds for business expansion (35%).

Regarding cash holdings, 65% of small business owners preferred to hold cash as much as possible. For insurance, 60% said "it is better to have sufficient coverage because you never know what might happen," and 52% believed "it is better to invest in various ways rather than just pensions."

The amount of money small business owners held in demand deposit accounts was most commonly between 1 million and 5 million KRW (32%). This was followed by 5 million to 10 million KRW (24%), 10 million to 100 million KRW (22%), less than 1 million KRW (19%), and over 100 million KRW (3%).

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 to the extent that they cannot use formal financial institutions, and that government and financial authorities have lacked adequate support policies to embrace them.

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, "Given that the government and financial authorities offered limited amounts, it was probably difficult to provide substantial assistance."

Professor Kim further advised, "To save small business owners, policies are needed that provide full-scale funding to those who are struggling and have nowhere else to turn, rather than support measures that distribute tens of thousands of won to everyone."

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