State financing for tech startups falls amid tighter eligibility requirements

[Image source: Gettyimagesbank]

Government financing for tech startups plunged in 2023 after the financial authority tightened its loan eligibility requirements the year before. In addition to the economic downturn and recent period of rising interest rates, the stricter restrictions forced small-to-medium-sized firms (SMEs) with lower tech relevance scores to lose their eligibility.

The South Korean government implemented a state financing program for SMEs and startups with innovative technology in 2014 and set up a guideline on financing eligibility in 2021.

To be eligible for the Technology Credit Loan, SMEs and startups must get their technology evaluated by commercial lenders and submit technology review reports annually.

According to the Korea Federation of Banks as of Sunday, however, Technology Credit Loan grants fell by 15.2 percent to 741,771 in August this year from 874,883 in September 2022. The loan values also decreased by 32 trillion won ($23.5 billion), or 9.6 percent, over the past year.

The decline came as the government’s tighter requirements reduced the number of recipients eligible for the loan. Many low-tech industries, such as leasing providers and retailers, lost their eligibility following the 2022 review.

“Existing borrowers, such as self-employed businesses, failed to extend their loans due to the stricter requirements,” an unnamed official from a commercial lender said.

Higher interest rates have discouraged tech SMEs from getting government financing, according to industry analytics. Data published by the Bank of Korea found that the interest rate on SME loans rose by 0.37 percentage points to 5.24 percent in August.