"Selective Support for Small Business Owners and Prevention of Personal Bankruptcy Needed"… Insights from Overseas Cases

Korea Institute for Advancement of Technology Analyzes Support Systems in Major Countries like Japan and the US
Bond Balance Exceeds 133 Trillion Won Due to Loan Maturity Extensions
"Debt Adjustment Criteria Should Be Relaxed to Prevent Personal Bankruptcy"
Proposal to Consider 'Special Relief Measures' Like Those in the US and Canada

[Asia Economy Reporter Kim Bo-kyung] As the financial soundness of small business owners and self-employed individuals deteriorates due to COVID-19, a proposal has emerged suggesting the need for tailored policies that selectively support businesses by distinguishing between those for whom closure is more advantageous and those that can recover, rather than providing unilateral support.

The Korea Institute of Startup & Entrepreneurship Development (KISED) announced on the 30th a report titled "Comparison of Support Systems for Small Business Owners and Self-Employed in Major Countries: Focusing on Rehabilitation, Closure, Credit Recovery, and Special Relief."

The report emphasized the necessity of selective support, stating, "It is necessary to prepare effective countermeasures before the potential insolvency of small business owners and self-employed individuals becomes visible, in order to minimize risks."

The government has extended the loan maturity and repayment deferral measures for small and medium enterprises and small business owners affected by COVID-19 four times since April 2020. The outstanding balance of loans with extended maturity and deferred repayment amounts to a total of 133.8 trillion KRW (as of the end of 2021), raising concerns about repayment burdens.

The report compared support systems for small business owners and self-employed individuals in major countries such as the United States, Japan, Canada, and France with those of South Korea. It first pointed out the need for tailored support through the establishment of diagnostic programs that can assess the rehabilitation potential of small business owners and self-employed individuals in crisis.

In Japan and the United States, when small businesses apply for support, their rehabilitation potential is assessed, and tailored support appropriate to their situation, such as rehabilitation or closure, is provided. In contrast, in South Korea, small business owners and self-employed individuals receive support based solely on their self-assessment and application.

As a result, it is analyzed that in South Korea, there are unreasonable cases where businesses capable of recovery choose closure, or businesses for whom closure would be more advantageous continue operations burdened with excessive debt.

Regarding credit recovery support systems, the report pointed out the need to activate private debt adjustment systems to prevent personal bankruptcy. While credit counseling and private debt adjustment are mandatory in the United States and France, South Korea lacks such measures, leading many cases to proceed directly to personal bankruptcy.

Ultimately, to support credit recovery for small business owners and self-employed individuals, it is necessary to relax the application criteria for the Debt Adjustment Committee's debt adjustment system, which is a form of private debt adjustment, and to increase the principal reduction rate.

The report also argued that a special relief system should be considered for small business owners and self-employed individuals who received government-provided loans to overcome the damages caused by COVID-19.

According to the report, Canada offers loan forgiveness of up to 20,000 Canadian dollars if businesses that received the government's Canada Emergency Business Account (CEBA) loans repay part of the loan early.

The United States operates the Paycheck Protection Program (PPP), which forgives the entire loan amount if the loan is used for eligible purposes, and the Small Business Administration (SBA) Debt Relief program, under which the government temporarily repays loans for certain government-provided loan programs.

Senior Researcher Kim Kyung-min suggested, "To provide practical and effective support to small business owners and self-employed individuals affected by COVID-19, it is necessary to establish a cross-ministerial one-stop support organization that integrates and comprehensively reviews various support systems currently implemented separately by each ministry."

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