Small and Medium Enterprises with High Loan Ratios Face Increasing Difficulties Due to High Interest Rates

Changwon Chamber of Commerce: "Changwon Companies Face Worsening Financial Conditions Due to Sales Slump and Rising Production Costs"

Gyeongnam Changwon Chamber of Commerce and Industry.

[Asia Economy Yeongnam Reporting Headquarters, Reporter Song Jong-gu] The Changwon Chamber of Commerce and Industry in Gyeongnam conducted a survey on the financial conditions of 144 manufacturing companies in the Changwon area, as the worsening financing conditions due to domestic and international monetary and fiscal tightening have emerged as a major management challenge.

When asked about financing methods, 53.6% of the responding companies answered that they finance through borrowing from banks or securities firms, accounting for more than half. This was followed by ‘internal reserves’ at 22.6%, ‘government subsidies’ at 13.7%, ‘private loans’ at 6.5%, ‘issuance of stocks and bonds’ at 2.4%, and ‘others’ at 1.2%.

By company size, the proportion answering ‘borrowing from banks and securities firms’ was 46.7% for large and medium-sized enterprises and 56.1% for small and medium-sized enterprises (SMEs). The proportion answering ‘internal reserves’ was 35.6% and 17.9%, respectively. This shows that SMEs rely more on borrowing from banks and securities firms for financing compared to large and medium-sized enterprises, while the proportion of self-financing through internal reserves is relatively low.

Regarding the purpose of new financing, 47.5% of respondents cited ‘fixed costs such as rent and labor costs’ as the most common reason, followed by ‘facility investment and business expansion’ at 37.6%, ‘debt repayment’ at 13.5%, and ‘asset investment’ at 1.4%.

By company size, large and medium-sized enterprises most frequently cited ‘facility investment and business expansion’ (48.7%), while SMEs most frequently cited ‘fixed costs such as rent and labor costs’ (52.0%).

When asked about the main risk factors in fund management, 48.3% responded ‘increase in loan interest rates due to base rate hikes,’ the highest proportion, followed by ‘end of principal and interest repayment deferral measures’ at 20.6%, ‘increased burden of foreign currency borrowing due to exchange rate rise’ at 16.7%, ‘reduction of policy support funds’ at 11.5%, and ‘others’ at 2.9%.

Following the rise in loan interest rates, by company size, large and medium-sized enterprises had a higher proportion answering ‘increased burden of foreign currency borrowing due to exchange rate rise’ (27.1%), while SMEs had a relatively higher proportion answering ‘end of principal and interest repayment deferral measures’ at 21.3%.

A representative of the Changwon Chamber of Commerce stated, “The financing purpose of SMEs in the Changwon area shows a high proportion of fixed cost expenditures for maintaining the status quo rather than new investments, so it is expected that the difficulties of SMEs will increase further under the high interest rate trend caused by monetary tightening.”

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