As of July this year, 26 businesses in Gyeongnam that received policy loans closed within a month. This figure surpasses last year's total of 25 closures in just seven months. Huh Seong-moo, a member of the National Assembly from the Democratic Party, highlighted cases where businesses shut down just three days after receiving loans, raising concerns about the Small Enterprise and Market Service's loan review process.
According to data released by Huh's office on the 28th, from 2022 to July this year, 2,910 small businesses nationwide closed within a month of receiving direct loans, totaling 60.88 billion won in policy funds.
This is not the first time Huh's office has investigated immediate post-loan closures. They have consistently raised concerns about this issue and requested data from the Small Enterprise and Market Service to identify businesses that closed shortly after receiving loans.
Huh's office views these immediate closures as indicative of potential issues in the loan review process and the possibility of planned 'loan operations.' Such cases could deprive genuinely needy small businesses of access to critical policy funds.
In fact, one business that received 60 million won from the Innovation Growth Promotion Fund on June 4 closed just three days later on June 7, citing a decline in franchise popularity and customer loss as reasons for its closure. Another business that borrowed the same amount on April 29 sold its operation and closed within a week on May 6.
The top five cases of ultra-short-term closures, identified by the Small Enterprise and Market Service based on loan amounts, all involved funds disbursed this year. The business that received the largest loan of 80 million won sold its operation 29 days after borrowing on March 30. Another business that received 60 million won on March 11 also closed just 11 days later. Four of the five closures cited 'sale' or 'restarting' as reasons.
Huh's office noted that transferring or selling a business, closing, or restarting typically requires a certain preparation period. The rapid closures and sales occurring just days to a week after loan disbursement suggest that business operations may have been winding down prior to the loan application and review process.
Since 2022, a total of 172 businesses in Gyeongnam have closed within a month of receiving policy funds. This year alone, 26 businesses closed by July, already exceeding last year's total of 25.
Busan also reported 28 closures by July, surpassing last year's 26, while Ulsan recorded 10 closures, exceeding last year's six. Cumulatively since 2022, Busan has seen 183 closures, Gyeongnam 172, and Ulsan 65, totaling 420 closures in the Busan-Gyeongnam-Ulsan region, which accounts for 14.4% of the national total of 2,910. The highest cumulative numbers were in Gyeonggi Province with 819 closures (28.1%) and Seoul with 444 (15.3%).
While the number of ultra-short-term closures decreased from 1,187 in 2022 to 465 in 2023, the total loan amounts remained relatively stable, with 13.45 billion won in 2022 and 13.22 billion won in 2023. The average loan amount per business increased from approximately 11.3 million won to 28.4 million won.
In 2024, 472 businesses received 12.33 billion won, while last year, 467 businesses received 12.68 billion won. By July this year, 319 businesses closed within a month of receiving loans, averaging about 45 closures per month, which is higher than last year's average of 39. The total loan amount has already reached 9.2 billion won.
By industry, the food and accommodation sector accounted for 1,508 closures (51.8%), more than half of all ultra-short-term closures. The service sector had 718 closures (24.7%), retail and wholesale 485 (16.7%), and manufacturing 137 (4.7%). This year alone, the food and accommodation sector accounted for 192 closures (60.2%) out of 319.
When comparing the total loan amounts, the disparity becomes more pronounced. Since 2022, direct loans to the food and accommodation sector totaled 1.8866 trillion won, representing 25.6% of the overall 7.372 trillion won in loans. However, of the 608.8 billion won disbursed to businesses that closed within a month, 322.5 billion won (53.0%) went to the food and accommodation sector. This indicates that the proportion of loans leading to ultra-short-term closures is approximately double that of the overall loan distribution.
Expanding the timeframe to one year post-loan, the number of closed businesses rises to 6,732, with a total of 398.9 billion won in policy funds disbursed to them.
Of this amount, only 33.9 billion won has been recovered, representing just 8.5% of the total disbursed. The amount written off stands at 85.9 billion won (21.5%), which is 2.5 times the recovery amount.
Last year, 764 billion won was disbursed, but only 84 billion won (11%) was recovered, while 390 billion won (51%) was written off. This year, by July, 368 billion won was disbursed, with 151 billion won (41%) already written off.
Huh views the closures within a month of receiving loans as more concerning than those within a year. If businesses cease operations within just a month of receiving support, it indicates that the loan review process should have more thoroughly assessed the sustainability of the business at the time of lending.
Huh's office noted that there has been no separate explanation from the Small Enterprise and Market Service regarding whether debt restructuring or bond sales are included in the write-off amounts, or the reasons behind the increase in the write-off rate from 0% in 2022 to 51% last year.
Huh's office argues that even if debt restructuring or bond sales are included in the write-off amounts, it is concerning that policy funds were disbursed to businesses that lost their viability within a year of receiving loans.
The Small Enterprise and Market Service conducts checks on business closures through National Tax Service inquiries during the loan application, review, and agreement processes, and also performs on-site inspections. However, on-site inspections are mandatory only for vulnerable small businesses with annual revenues below a certain threshold or when there are suspicions of business inactivity.
If a business closes within 90 days of receiving a loan, there is a procedure to review the use of funds.
Huh's office pointed out that the National Tax Service's closure inquiries only verify the business registration status, and the 90-day review of fund usage occurs after the funds have been disbursed. They argue that more rigorous pre-loan assessments are necessary to identify potential closure risks.
Huh criticized the practice of granting loans to businesses that close just three days later, stating, "Providing funds to a business that shuts down three days after receiving a loan is a case of poor review disguised as rapid disbursement."
As an alternative, he proposed establishing a pre-screening system that comprehensively examines factors such as significant drops in employment, unpaid social insurance contributions, and recent declines in sales and utility payments. He also suggested a 'exit package' for borrowers deemed unlikely to recover, which would include debt restructuring, support for store demolition, and vocational training. This approach aims to transition from separate support programs like the Hope Return Package after closure to a more integrated assessment of repayment capacity and recovery potential.
Huh plans to question the Small Enterprise and Market Service regarding the loan review and post-management issues during this year's National Assembly audit. He will also consider whether to propose legal amendments or budget allocations after further data investigation.
* This article has been translated by AI.
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