Most small businesses rely on commercial lenders to raise funds

[Photo by Han Joo-hyung]

Most small businesses in South Korea heavily relied on commercial lenders to finance themselves in 2023, according to a recent survey. The average interest rate on them was four to five percent a year.

The Industrial Bank of Korea revealed the key findings of the survey of 4,500 small business owners with sales of more than 500 million won ($361,010). Most businesses in the survey said they raised 76.5 percent of their new funds from commercial banks in 2023, showing higher reliance on the lenders compared to the previous year’s 59.2 percent. The average interest rate for new bank loans was 4.57 percent for collateral loans and 5.59 percent for credit loans, which were up 0.73 and 0.99 percentage points respectively from the previous year.

A significant 61.3 percent of participants reported that rising interest rates had a significant impact on their business. In response to rising rates, 55.6 percent expressed a desire for flexible loan terms and increased credit limits, and 76.1 percent expected the ongoing economic slowdown to continue into the second half of 2024.