[Exclusive] "We Thought Bigger Debts Would Hurt More..." Business Owners With Less Than 100 Million Won Loans Have Higher Delinquency Rates Than Those With Over 500 Million Won

Only 13% of Total Loans, But 22% of Delinquent Balances
Higher Delinquency Rates for Small Loans, Low Credit, Low Sales, and Sole Proprietors
Prolonged Sluggish Domestic Demand and High Interest Rates
Rising Concerns Over Insolvency Among V

It has been found that individual business owners with smaller bank loans tend to have higher delinquency rates. Specifically, the delinquency rate among individual business owners with outstanding loans of less than 100 million won is more than double that of those with loans of 500 million won or more. Despite strong performance in some export sectors, such as semiconductors, the slow domestic recovery and prolonged period of high interest rates have been rapidly weakening the repayment capacity of small and vulnerable self-employed individuals.

Yonhap News Agency

According to data submitted by Assemblyman Kim Jaeseop, a member of the National Assembly’s Political Affairs Committee, from the Financial Supervisory Service, as of the end of June this year, the delinquency rate for individual business loans of less than 100 million won at domestic banks stood at 1.15%. This is significantly higher than the overall delinquency rate of 0.69%.

The larger the loan amount, the lower the delinquency rate. Borrowers with outstanding loans ranging from 100 million to 300 million won had a delinquency rate of 0.81%, those with 300 million to 500 million won had a rate of 0.71%, and those with over 500 million won marked 0.54%. In other words, the delinquency rate for borrowers with less than 100 million won exceeds twice that for borrowers with more than 500 million won.

The total outstanding balance of individual business loans below 100 million won is 61.1918 trillion won, accounting for 13.3% of the total outstanding balance of 460.8947 trillion won. However, the overdue amount from these borrowers reaches 704.9 billion won, making up 22.3% of the total overdue amount of 3.1622 trillion won.

While it is difficult to determine the exact business scale or borrower’s vulnerability purely based on loan balance, the trend of rising delinquency rates among vulnerable self-employed individuals is also confirmed through other indicators such as credit rating, sales, and whether or not the business has employees.

The rise in delinquency is particularly sharp among self-employed individuals with low credit scores. According to the financial sector, the delinquency rate for business loans to self-employed individuals with a credit grade of 9 at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) jumped from 4.56% at the end of 2021 to 23.58% at the end of August this year, growing more than fivefold. During the same period, the delinquency rate for those with grade 7 credit scores rose from 1.68% to 6.58%, nearly a fourfold increase.

A similar pattern appears when viewed by sales volume. According to the Ministry of Data and Statistics, at the end of 2024, the delinquency rate for individual business owners with annual sales below 30 million won was 2.03%, the highest among all sales tiers, and up 0.74 percentage points year-on-year. In contrast, those with annual sales over 1 billion won had the lowest rate, at just 0.28%. Individual business owners running their businesses alone had a delinquency rate of 1.0%, more than triple the 0.32% rate for those with employees. Year-on-year, these figures had respective increases of 0.3 percentage points and 0.09 percentage points, demonstrating a significant difference.

This means that high delinquency rates are commonly observed among not only small-scale borrowers, but also vulnerable groups such as those with low credit, low sales, or sole proprietorships. As the gap persists between export and domestic demand, it is analyzed that the economic downturn disproportionately affects the smallest business owners.

An official at a major commercial bank commented, "In the case of individual business loans under 100 million won, these are often backed by a credit guarantee foundation’s guarantee certificate. Once the period of interest-only payments ends and principal repayments begin, business owners with sluggish sales find it difficult to cover both principal and interest, leading to delinquencies." The official added, "Because these are guaranteed loans, some borrowers effectively give up on repayment, expecting the guarantee institution to make the payment on their behalf when delinquencies occur."

Delinquency rates are also on the rise in industries with high dependency on the domestic market. At Industrial Bank of Korea, which has a high proportion of loans to individual business owners and small businesses, delinquency rates are markedly increasing in sectors where the self-employed are concentrated. For accommodation and food service businesses, the delinquency rate jumped from 0.53% at the end of 2022 to 1.4% at the end of last year. Although it fell slightly to 1.24% as of the end of June this year, it still remains more than double the level at the end of 2022. The increase is even steeper in wholesale and retail sectors, with the rate rising from 0.36% at the end of 2022, to 1.02% at the end of last year, and to 1.11% as of the end of June this year—over triple in three and a half years.

The problem is that business conditions for self-employed individuals are hardly improving while interest burden is mounting. As global oil prices rise and inflation concerns reemerge, the 10-year U.S. Treasury yield—which serves as a global benchmark—has approached 5.3% per year. A prolonged period of high interest rates, coupled with rising market rates being reflected in domestic lending rates, may further increase interest burdens on small and vulnerable business owners who are already struggling with weak sales and high costs, leading to even more delinquencies, especially among marginal borrowers.

Kim Jeongsik, Professor Emeritus at Yonsei University’s Department of Economics, commented, "The fact that delinquency rates are higher among sole proprietors means that more self-employed individuals are struggling so much that it is difficult to even cover labor costs. If the domestic slump continues and interest rates rise further, delinquencies may spread more widely, developing into a risk for overall financial soundness."

Assemblyman Kim stated, "The fact that smaller loans have higher delinquency rates indicates that the shock of sluggish domestic demand is falling hardest on small business owners. Instead of only looking at the total loan amount, we need to carefully manage the risks of default among small-scale borrowers and vulnerable individual business owners." He added, "It is difficult to resolve the problem by simply extending more credit to those who are already at the limit. Financial authorities need to reform policies to ensure debt restructuring and recovery support are set in motion even before delinquencies actually occur."

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