Gov't-backed loans offered to all small shops from Jan. 18

Starting Jan. 18, small shops struggling due to heightened social distancing measures will be eligible for government-backed loans offered at commercial banks with interest rates a maximum 2 percentage points lower than currently available.

A sign announcing that the business is temporary suspended posted on an empty restaurant in downtown Seoul on Thursday. [YONHAP]

Starting Jan. 18, small shops struggling due to heightened social distancing measures will be eligible for government-backed loans offered at commercial banks with interest rates a maximum 2 percentage points lower than currently available.

Businesses that have been restricted or forced to temporarily shut will also be eligible for an additional loan of a maximum 10 million won ($9,100).

This is a follow-up to the maximum 3-million-won government grant for small-shop owners heavily impacted by business restrictions including limiting restaurants and cafes to take out only or forcing businesses like gyms to close since late November.

According to the Financial Services Commission (FSC) on Thursday, commercial banks on Dec. 29 lowered maximum interest rates for loans to struggling businesses from 4.99 percent to 3.99 percent.

The five largest banking groups — KB Kookmin, Shinhan, Woori, Hana and NH Nonghyup — as well as the state-owned Industrial Bank of Korea (IBK) have agreed to shave off an additional 1 percentage point for new loans starting Jan. 18.

Any small store can apply for a loan of up to 20 million won.

Borrowers can repay the debt in installment for three years after the second year.

However, the borrower will have to pay 0.3 percent as a credit guarantee fee for the first year and between 0.9 percent between the second and fifth years.

The loan guarantee fee was lowered from the previous 0.9 percent.

According to the FSC, as of January, 790,000 small-shop owners have borrowed a total of 18.3 trillion won in government-backed financial loans initiated in March last year when the first wave of Covid-19 hit.

In addition to the 20-million-won loans, the government has decided to provide an additional loan of a maximum 10 million won for small shops that have been directly hit by Covid-19 social distancing rules.

For that loan, borrowers don’t have to pay a loan guarantee fee for the first year but have to pay 0.6 percent between the second and fifth years.

Interest rates will be the same as the maximum 20-million-won loans offered to all small businesses.

The FSC in its statement said the commercial banks have agreed to take part in helping out small-businesses owners whose struggles continue as businesses have been affected by the ongoing third wave of Covid-19.

A study by the National Assembly Research Service released on Jan. 4 has found that the impact of the third wave on small shops were harsher than the first two waves.

Credit card spending between Dec. 7 and 13 at small shops shrunk 29 percent compared to the same period in 2019.

In the first wave, in March, the average credit card spending at small shops were estimated to have shrunk between 17 and 20 percent on year.

During the second wave in August, it fell around 25 percent.

With the government continuing to implement the strictest social distancing since late November, business owners have called on the government and the ruling party to ease regulations.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]