Self-Employed Debt Up 30% Due to COVID-19...SMBA Urges Urgent Customized Debt Management

Q3 2021 Self-Employed Debt 887 Trillion Won... Up 29.6% from Two Years Ago
Concerns Over Increased Financial System and Social Burden from Small Business and Self-Employed Debt
"Need for Debt Management Including Fixed-Rate Refinancing and Customized Interest Support"

[Asia Economy Reporter Kwak Min-jae] As loans for small business owners and self-employed individuals have surged due to the prolonged COVID-19 pandemic, there are calls for urgent customized debt management measures.

According to the Small and Medium Venture Business Research Institute's report titled "Customized Debt Management Measures for Small Business Owners and the Self-Employed" on the 9th, as of the third quarter of 2021, the debt of self-employed individuals reached 887.5 trillion won, a 29.6% increase compared to the same period in 2019. Loans to individual business owners amounted to 579.3 trillion won (65.3%), and household loans to individual business owners were 308.2 trillion won (34.7%).

In particular, the proportion of loans to self-employed individuals who are multiple debtors, low-income earners, or borrowing from non-bank sectors?who are at high risk of default?is expanding, and vulnerable borrowers are concentrated in small-scale industries and sectors hit hard by COVID-19.

The institute warned that the increasing debt could not only burden small business owners and the self-employed but also exacerbate risks to the financial system and social burdens.

Researcher Jeong Eun-ae of the institute said, "COVID-19 has increased not only the scale of debt but also the proportion of high-interest loans from non-bank sectors," adding, "Multiple debtors with large loan amounts are likely to roll over their debts with other high-interest loans, which could expand financial institution risks if defaults occur."

Concerns have also been raised that as the base interest rate rises, loan recovery from small business owners and the self-employed could increase social burdens.

Researcher Jeong warned, "If the base interest rate rises and real estate prices fall, the debt repayment ability of self-employed individuals could sharply decline," adding, "In such situations, if financial institutions competitively pursue loan recovery, it could push marginal small business owners and the self-employed into vulnerable households and generate unemployment, thereby increasing social burdens."

The report proposed customized debt management measures including ▲fixed-rate refinancing loans for businesses subject to administrative orders ▲tailored interest support ▲stepwise interest deferral and exemption ▲debt repayment plan consulting to improve usability ▲and extension of grace and repayment periods.

It also added that, in the medium to long term, operating phased loan adjustment programs for collateral loans and working capital loans that adjust the collateral loans of self-employed individuals would be helpful, as well as working capital debt adjustment programs.

Researcher Jeong also suggested that policies recognizing conditional business closures or package policies including partial principal forgiveness should be prepared.

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