Regional Credit Guarantee System Subrogation Rate to Be Stabilized at 3% Range by 2030

Government Announces “Plan to Establish a Sustainable Guarantee Support System”

The government has announced plans to stabilize the subrogation rate of the regional credit guarantee system, a key financial support mechanism for small business owners, at around 3.2% by the end of 2030. During the same period, the proportion of guarantees provided by all regional credit guarantee foundations (RCGFs) in non-metropolitan areas will be expanded to about 70%.

On June 19, the Ministry of SMEs and Startups, together with relevant ministries, unveiled a plan for "Establishing a Sustainable Guarantee Support System" at the Emergency Economic Headquarters meeting and Economic Ministers' Meeting, chaired by Deputy Prime Minister for Economic Affairs Koo Yoon-cheol.

The regional credit guarantee system is a representative policy finance tool used by approximately 1.3 million small business owners, accounting for about 17% of all small business owners in Korea. However, due to a combination of factors such as the response to COVID-19 and prolonged high interest rates, the subrogation rate surged to 5.07% as of the end of last year. As a result, there has been a growing need for institutional innovation and structural improvements to ensure sustainability.

The government plans to overhaul the regional credit guarantee system, strengthen the inclusive financial safety net for vulnerable small business owners, and push for institutional improvements to enhance region-specific guarantees and promote growth. As a first step, full guarantees operating at a 100% guarantee ratio will, in principle, be prohibited to reduce excessive guarantee ratios. In addition, regulations will be revised to allow regional credit guarantee foundations to offer guarantees without re-guarantees if they secure independent financial resources.

The guarantee screening system will also be upgraded. In addition to the traditional financial and credit-based evaluations, new non-financial information such as commercial district data will be included to diversify assessment criteria. Qualitative indicators will also be strengthened in the evaluation of guarantee operations for all 17 regional credit guarantee foundations. Problems identified through a specific audit by the Ministry of SMEs and Startups, such as delays in guarantee termination leading to disruptions in new guarantee supply and excessively long repayment periods, will be addressed. The notification period will be improved to ensure that guarantees are promptly terminated upon loan repayment, and the maximum permissible repayment period will be set and managed for cases where debtors repay after subrogation.

In particular, to strengthen the soundness of the re-guarantee system, the current re-guarantee rate of over 50% will be lowered to 30%. However, for guarantees for individuals with mid- to low credit scores, an appropriate level of re-guarantee ratio will be maintained to prevent a contraction of guarantees due to the reduction. When setting the re-guarantee limit, a new review process will be established to assess the adequacy of the guarantee plan, and a monitoring system will be implemented for guarantees accompanied by re-guarantees.

To support small business owners' recovery, non-performing loans will be swiftly resolved. The Ministry of SMEs and Startups plans to resolve approximately KRW 2.2 trillion worth of non-performing loans by 2030 by easing write-off and charge-off requirements and streamlining approval procedures for loans deemed uncollectible. Guarantee restrictions will also be relaxed for previous debtors, such as allowing new guarantees for companies whose public information registration has been lifted. A new special guarantee for small business owners affected by indirect disasters will be introduced, along with a KRW 170 billion special guarantee for small business owners with low credit scores and those in depopulated areas.

Efforts will also be made to vitalize region- and commercial district-based guarantees. Each regional credit guarantee foundation will collaborate with local governments to solicit outstanding guarantees and provide preferential terms for re-guarantees through a new special guarantee program, with a total supply target of KRW 2 trillion by 2030. Moving away from the existing support system focused solely on individual small business owners, a new "Commercial District Growth Support Special Guarantee" will be launched to promote joint growth among small business owners within the same commercial district. In addition, regulations will be eased so that growth-oriented small business owners are exempt from the current maximum guarantee limit of KRW 800 million. Application and screening requirements for existing guarantee programs supporting growth-oriented small business owners, such as entrepreneur-type small business guarantees, will be revised to better reflect demand.

The government will swiftly implement these policy tasks starting in the second half of this year and aims to prepare amendments to the Regional Credit Guarantee Foundation Act, including grounds for tax information collection, by the end of the year. Through these measures, the government seeks to solidify a stable operational foundation for the regional credit guarantee system and enhance appropriate financial support tailored to the guarantee needs of small business owners.

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