Small business owners wait in line to apply for emergency rescue loans at the Seoul Central Center of the Small Enterprise and Market Service on March 24. (Yonhap)
Small business owners have increasingly turned to nonbanking lending despite the higher-interest loans to withstand the economic fallout from the coronavirus pandemic, data showed Tuesday.
According to the Korea Federation of Community Credit Cooperatives, a mutual financial institution, its banks extended emergency rescue loans worth 15.5 billion won ($12.67 million) to coronavirus-hit small business owners without credit ratings between March 11 and Friday.
The demand for loans from KFCC had rapidly increased as of mid-March, up 5.2 billion won from a month earlier. In response to growing demand, the nonbank lender even extended its lending limit from 50 billion won to 100 billion won last month.
Despite the higher rates of nonbanking loan programs, small business owners with lower credit tend to seek loans from nonbanking lenders as the allocation of government-issued loans has been slow due to the flood of applications, the KFCC said. The one-year lending rate of emergency loans from the KFCC is between 3 and 4 percent, while that of the state-run Industrial Bank of Korea and other major banks comes to 1.5 percent.
Meanwhile, the number of small business owners who applied to the KFCC for payment deferrals has also soared. As of Friday, deferred payments on loans amounted to a combined 222.2 billion won, up nearly 157 billion won from the previous month (64.9 billion won).
Borrowing from other member-owned financial cooperatives also remained on an uptrend. The National Credit Union Federation of Korea and the Korea Federation of Savings Banks lent out some 71 trillion won and 65 trillion won, up 9 percent and 10 percent from a year earlier, respectively, according to the Bank of Korea.
By Choi Jae-hee (email@example.com