Financing SMEs and Entrepreneurs 2026: Korea
Table of contents
In 2024, the South Korean economy showed a modest recovery following two years of subdued growth. Real GDP expanded by 2.0%, driven mainly by an export rebound in semiconductors and automobiles, while domestic demand remained weak due to persistently high interest rates and subdued household spending. Corporate debt continued to rise steadily, reaching KRW 1,350 trillion by the end of 2024, as firms, particularly large enterprises, relied more heavily on bank loans amid tighter bond-market conditions and elevated funding costs.
Despite monetary tightening, SMEs maintained positive loan growth. Outstanding SME loans increased from KRW 993 trillion in 2022 to about KRW 1,086 trillion in 2024, supported by policy-based financing and credit guarantees. However, the higher interest-rate environment constrained profitability and borrowing capacity, especially for domestic-oriented firms. The average lending rate for SMEs rose to 5.0% in 2024, compared to 4.1% in 2022, while the spread with large-corporate loan rates narrowed to around 0.1 percentage points, indicating a near convergence in borrowing costs.
Venture investment, after peaking at KRW 7.68 trillion in 2021, contracted to KRW 6.76 trillion in 2022 and KRW 5.40 trillion in 2023 before recovering slightly to KRW 6.63 trillion in 2024. Early-stage companies continued to attract the largest share of new investment, supported by government-backed funds targeting AI, green technologies, and mobility sectors.
After nearly a decade of steady improvement, credit quality showed mild deterioration as policy forbearance measures wound down. The SME non-performing loan (NPL) ratio, which fell from 1.8% in 2015 to 0.56% in 2022, increased to 0.83% in 2024, while the average payment delay on short-term SME loans stood at about 9.8 days (from 10.1 in 2023), reflecting persistent liquidity pressures.
The government and policy banks continued to support SMEs through credit guarantees, loan restructuring, and targeted liquidity programmes, but with the gradual normalisation of macroprudential measures, many crisis-era supports were phased out. As a result, SMEs now face a dual challenge: adapting to a structurally higher cost of capital while operating with fewer policy buffers. Elevated financing costs, increased competition for bank credit, and lingering PF-related risk aversion together define the post-crisis financial landscape for Korean SMEs. This environment underscores the broader macroeconomic reality of an economy that, while showing resilience through exports, still faces internal vulnerabilities rooted in weak domestic demand and tight financial conditions.
Since April 2020, the government’s Loan Maturity Extension and Repayment Deferral Programme has remained the central support mechanism for SMEs and self-employed businesses. As of late 2024, the outstanding balance of extended or deferred loans had declined to KRW 53 trillion, with repayment schedules allowed until September 2028. Complementary measures, including the Soft-Landing Debt Adjustment Programme, Hope Loan Step-Up, and special guarantees for low- to medium-credit borrowers, continued to provide targeted relief and refinancing options for viable but financially strained firms.
South Korea’s economic performance over 2023 and 2024 illustrates a gradual recovery from pandemic-era stagnation but also a persistent structural divide between strong export-led growth and weak domestic demand. In 2023, real GDP expanded by only 1.4 per cent, marking one of the slowest growth rates since the global financial crisis. Private consumption rose merely 1.8 per cent, as households struggled under the combined pressure of high interest rates, elevated living costs, and rising debt-service burdens. Facility investment remained subdued during the first half of the year, while construction activity contracted amid tighter financial conditions and a cooling property market. However, exports began to rebound in the second half of 2023 as the global semiconductor market stabilised and automobile shipments surged, helping to narrow the trade deficit. Although exports for the year as a whole declined by 7.4 per cent and imports by 12.1 per cent, the turnaround from October 2023 onward signalled that the external sector was regaining momentum.
The recovery carried into 2024, when Korea’s GDP expanded by approximately 2.0 per cent, according to preliminary data from the Bank of Korea. The rebound was driven primarily by strong external demand, led by semiconductors, automobiles, shipbuilding, and secondary batteries. The current account surplus widened to about USD 99 billion, the largest since 2021, reflecting improved terms of trade and robust export volumes. Yet, despite this headline improvement, the growth pattern remained unbalanced. Domestic demand continued to lag behind: household spending was constrained by persistent high borrowing costs, weak real-income gains, and subdued consumer confidence, while corporate investment improved only modestly. In short, Korea’s recovery during 2023–2024 remained export-driven rather than consumption-led, with growth heavily reliant on manufacturing competitiveness and global demand rather than domestic momentum.
These macroeconomic trends were mirrored in financing conditions for firms. Despite a decline in inflation, the Bank of Korea maintained its policy rate at elevated levels through most of 2024, keeping borrowing costs high. For SMEs, this environment translated into sustained pressure on margins and liquidity. Large corporations, facing tighter corporate bond markets and higher short-term funding costs, increasingly turned to bank loans, intensifying competition for credit and indirectly crowding out smaller borrowers. While export-oriented SMEs benefited from stronger external demand and improved cash flow, domestic-oriented SMEs, particularly in construction, wholesale, and local services, continued to face weak revenues and growing refinancing risks.
Importantly, the 2022 Legoland liquidity shock triggered a broad credit squeeze in Korea’s short-term funding markets, which spilled over into the real estate project financing (PF) sector. Even by 2024, the PF market remained under stress: spreads on PF loans and asset-backed commercial paper (ABCP/ABSTB) widened sharply, and several developers and securities firms experienced severe funding constraints, leading to project delays and partial construction halts. The government and financial authorities responded with emergency stabilisation funds, PF guarantee enhancements, and maturity-extension programmes, which prevented a systemic liquidity crisis but did not fully restore market confidence. The lingering PF stress has continued to weigh on overall credit sentiment, tightening financing conditions for construction-related SMEs and contributing to higher credit-risk premiums across the SME loan market.
As of the end of 2023, small and medium-sized enterprises (SMEs) remained the cornerstone of South Korea’s business ecosystem, accounting for 99.9% of all enterprises, 80.4% of total employment, and 44.9% of total corporate sales revenue. According to the Ministry of SMEs and Startups (MSS, 2025 release), Korea counted 8 298 915 business establishments, up 3.2% (about 256 189 net increase) from the previous year. SMEs employed 19.1 million workers, representing a year-on-year increase of roughly 0.9%, and continued to play a pivotal role in maintaining labour market stability and regional economic activity. Despite their quantitative dominance, SMEs’ share of total sales remains below 50%, underscoring the persistent productivity gap between small and large firms and the vulnerability of microenterprises to cyclical and financial shocks.
The performance of SMEs in 2023–2024 varied sharply across industries, reflecting both cyclical headwinds and ongoing structural transformation. In manufacturing, SMEs faced a two-speed recovery. Traditional sectors such as basic metals, metal fabrication, and chemicals continued to suffer from subdued construction activity, weak domestic investment, and high input costs. In contrast, semiconductors, batteries, electronic components, and precision machinery registered solid recoveries alongside Korea’s broader export rebound in 2024. The semiconductor equipment and materials cluster, in particular, experienced a sharp upturn as the global inventory correction ended and new investment cycles began. This divergence highlights Korea’s gradual industrial reconfiguration, where competitiveness is increasingly defined by digitalisation, green transition capabilities, and integration into advanced manufacturing value chains rather than firm size alone.
In the service sector, SME activity benefited from the full reopening of the economy and a rebound in mobility, tourism, and logistics. Industries such as accommodation, food services, cultural and leisure services, and transport expanded notably through 2024, supported by both domestic consumption and a surge in inbound tourism. However, real estate, construction, and wholesale/retail distribution remained under strain due to a prolonged high-interest-rate environment, weak housing demand, and tight margins. The aftermath of the Legoland liquidity shock of late 2022, which triggered a credit crunch in project finance (PF) markets, continued to weigh on construction-related SMEs. Even in 2024, the real-estate PF segment remained fragile, with elevated funding costs and delayed projects affecting subcontractors, material suppliers, and regional small builders. Government liquidity backstops, PF guarantees, and stabilisation funds helped avert systemic contagion but did not fully restore investor confidence.
The employment and output structure of Korean SMEs continues to display a “dual” pattern: they sustain around four-fifths of the nation’s jobs but account for less than half of total corporate turnover. More than 80% of SMEs are microenterprises (fewer than 10 employees), whose productivity per worker remains roughly one-third of that of large firms. In contrast, mid-tier firms, medium-sized enterprises with 300 - 999 employees, have expanded modestly, supported by deeper integration into export-oriented supply chains, especially in advanced manufacturing and IT services. These firms increasingly serve as a bridge between startups and conglomerates, facilitating technological diffusion and scaling innovation across industries. Their growth also signals the gradual emergence of a more diversified SME landscape, spanning from microenterprises in domestic services to mid-sized exporters in high-tech sectors.
Source: Ministry of SMEs and Startups.
In the two years following the 2022 monetary tightening cycle, Korea’s corporate credit landscape underwent a significant transformation. Despite the steep rise in benchmark interest rates, climbing from 1.25% at the start of 2022 to 3.50% by early 2023, corporate debt levels continued to expand. Bank of Korea data show that total corporate loans reached approximately KRW 1,350 trillion by the end of 2024, up nearly KRW 130 trillion from two years earlier. Much of this increase was driven by large enterprises that had traditionally relied on the corporate bond and short-term money markets but turned to bank financing amid funding-market disruptions and widening spreads.
The turning point was the second half of 2022, when the Legoland incident, triggered by a local government-backed developer’s default, sparked a sharp repricing of credit risk in Korea’s short-term funding markets. Funding costs for project-finance asset-backed commercial paper (PF ABCP) surged, freezing liquidity in the nonbank segment. As the corporate bond market faced similar tightening, spreads on AA-rated bonds temporarily exceeded 200 basis points; large firms began to substitute market-based funding with bank borrowing. This crowding effect strained the loan supply available for SMEs, whose lending rates rose faster and whose access to new credit tightened. By the end of 2022, SME loans had increased by KRW 70.5 trillion, a slower pace than the KRW 85.9 trillion expansion seen in 2021, as liquidity was redirected towards large borrowers seeking bank credit.
Throughout 2023 and 2024, the environment remained challenging. Persistently high interest rates and a real-estate downturn exacerbated stress in project-finance (PF) loans, with delinquency ratios for construction-related lending climbing steadily. Several mid-tier construction companies and securities firms faced liquidity constraints as property transactions and new PF issuances dried up. This, in turn, discouraged banks from expanding credit exposure to the sector, amplifying risk aversion across the financial system. Even as the government activated bond-market stabilisation funds and expanded PF guarantees, the corporate credit channel remained segmented: credit continued to flow to high-rated or export-oriented firms, while SMEs in domestic-oriented and service industries faced tighter underwriting standards.
By the end of 2024, outstanding SME loans had reached roughly KRW 1,085 trillion, compared to KRW 993 trillion in 2022—an increase of about KRW 92 trillion over two years. Although this expansion appears sizable, it masked a pronounced deceleration relative to pre-2022 averages, as real loan growth was eroded by higher borrowing costs. The average lending rate for SMEs climbed to around 5.0% in 2024, up from 4.1% in 2022, while large-firm rates rose to 4.9%, narrowing the spread between the two to near zero. This convergence, while reflecting market normalisation, also indicated that banks passed through elevated funding costs uniformly across firm sizes.
As a result, SMEs, particularly those in domestic-facing sectors such as retail, construction subcontracting, and real estate services, experienced mounting liquidity pressures. The tightening of credit lines, combined with the gradual rollback of pandemic-era loan-maturity extensions, led to higher refinancing risk. According to Financial Supervisory Service (FSS) data, the non-performing loan (NPL) ratio for SMEs rose from 0.56% in 2022 to about 0.83% in 2024, while credit guarantees outstanding through KODIT and KIBO increased slightly to KRW 89–90 trillion as policy support persisted. In contrast, mid-sized exporters and manufacturing SMEs benefited from the export recovery, improved cash flow, and stable demand for working capital.
Overall, the post-2022 period has underscored a structural duality in Korea’s corporate finance system: while the banking sector successfully absorbed funding shocks and prevented a systemic liquidity crisis, the reallocation of credit towards large, investment-grade borrowers has left smaller firms facing higher financing costs and reduced access. Strengthening the risk-based pricing framework, SME credit assessment tools, and policy-based guarantee efficiency will therefore remain crucial to restoring balanced credit growth and mitigating the lasting effects of the PF-market turbulence on SME lending conditions.
KRW Trillions
Source: Korea Federation of banks (KFB).
Between 2020 and 2024, Korea’s corporate lending environment shifted dramatically in response to one of the fastest monetary tightening cycles in the nation’s modern history. Following the pandemic-era easing phase, when the Bank of Korea (BOK) had lowered its base rate to a record low of 0.50% in mid-2020, the policy stance turned decisively restrictive from the second half of 2021 onward. The base rate, which was 0.75% in August 2021, was raised in a series of consecutive steps, reaching 3.25% by December 2022 and further to 3.50% in early 2023, where it remained throughout 2024. This marked a cumulative 300-basis-point tightening over roughly 18 months, implemented to curb inflation that had surged to over 5% in 2022 before moderating to around 3.6% in 2023 and 2.6% in 2024.
As a result, interest rates on loans to both large corporations and small and medium-sized enterprises (SMEs) rose sharply, reflecting higher funding costs and tightened credit conditions. According to BOK data, the average lending rate for large corporations climbed from 2.74% in 2021 to 3.84% in 2022, 5.04% in 2023, and approximately 4.9% in 2024. Meanwhile, the average SME loan rate rose even more rapidly, from 2.92% in 2021 to 4.13% in 2022, 5.31% in 2023, and stabilised around 5.0% in 2024. The sharp rise in both rates mirrored the central bank’s policy normalisation as well as elevated competition for credit, particularly as large enterprises shifted borrowing from the bond market to the banking sector amid wider credit spreads.
Interestingly, the interest-rate spread between SME and large-corporate loans narrowed considerably over this period. After widening during 2015–2018 and briefly contracting in 2019–2020, the spread stood at 0.19 percentage points in 2021, expanded slightly to 0.29 percentage points in 2022, and then compressed again to 0.12–0.10 percentage points by 2024. This near-convergence of corporate lending rates was driven by several structural factors. First, banks’ risk-based pricing frameworks increasingly reflected stronger collateral and guarantee coverage among SMEs, thanks to government credit-guarantee schemes that mitigated credit-risk differentials. Second, heightened market risk prompted banks to reprice large-corporate loans upward, particularly for companies facing higher bond-market funding costs. Finally, macroprudential guidance encouraged balanced credit allocation between small and large borrowers, tempering the premium typically charged to SMEs.
From a broader perspective, the Korean corporate credit market since 2022 has displayed a paradoxical pattern: while borrowing costs have risen for all firms, the traditional rate gap between small and large companies has almost disappeared. This suggests that banks have prioritised portfolio risk management and liquidity preservation over aggressive SME lending expansion. Although the narrowing spread might appear favourable, it in fact reflects compressed credit differentiation, where both SMEs and large enterprises face similarly high borrowing costs. For smaller firms with thinner profit margins, this uniform rise in financing costs represents a heavier real burden, underscoring the importance of targeted policy lending, credit-guarantee efficiency, and sustained financial support for SME liquidity in the current high-rate environment.
Source: Bank of Korea(BOK).
Korea’s venture investment market, which had expanded rapidly during the pandemic years, entered a normalisation phase between 2022 and 2024 as monetary conditions tightened and investor sentiment cooled. After reaching KRW 4.30 trillion in 2020, the market surged to a record KRW 7.68 trillion in 2021, representing a 78.4% year-on-year increase, the largest in Korea’s venture history. However, as the Bank of Korea began a rapid rate-hike cycle in late 2021, the momentum faded. Venture investment fell to KRW 6.76 trillion in 2022 (–11.9%) and further declined to KRW 5.40 trillion in 2023 (–20.2%), before showing early signs of recovery in 2024, when total venture investment amounted to approximately KRW 6.63 trillion, marking a 22.9% rebound from the previous year (MSS & KVCA, Venture Investment Trends 2025).
The contraction in 2022–2023 was mainly driven by rising interest rates, inflation, and valuation corrections in the technology sector, while the subsequent recovery in 2024 reflected improved risk appetite amid monetary-policy stabilisation. Notably, the decline in Korea was less severe than in major global markets; venture investment fell by over 35% in the U.S. and 40% in Israel during the same period, underscoring the relative resilience of Korea’s VC ecosystem. Despite reduced deal volume, the Korean market remained active in seed and early-stage investments, sustained by domestic institutional investors and public venture funds, including the Korea Venture Investment Corp. (KVIC) fund-of-funds programme.
By industry, investment concentration persisted in three key areas (ICT services, bio/medical, and distribution/services)which together accounted for roughly 71% of total investments in 2024. The ICT services sector attracted about KRW 2.25 trillion (35.5%), supported by renewed funding in artificial intelligence (AI), digital content, and cloud platforms. The bio/medical sector, despite volatile valuations, received around KRW 1.02 trillion (16%), as investor sentiment began to stabilise following the sharp correction of 2022–2023. Meanwhile, green technology, secondary batteries, and mobility-related startups emerged as new growth engines, collectively representing more than KRW 900 billion (14%) of total venture investments in 2024, three times their 2020 level. This diversification suggests a gradual shift from pure ICT-driven growth towards cross-sectoral innovation aligned with Korea’s green and digital transition policies.
By investment stage, the market exhibited a marked tilt towards early-stage funding. Investments in early-stage firms (under 3 years old) reached a record KRW 2.17 trillion in 2024, a 5.8% year-on-year increase, surpassing the KRW 2 trillion threshold for a third consecutive year. Mid-stage (3–7 years) and late-stage (over 7 years) firms, however, saw declines of 8.3% and 12.1%, respectively, as investors sought lower valuations and greater upside potential in seed-stage ventures. The average deal size fell modestly, but the number of transactions increased by nearly 9%, reflecting a more cautious yet selective investment climate.
Geographically, Seoul and Gyeonggi Province continued to dominate the venture landscape, attracting about 76% of total investments, though regional ecosystems such as Busan, Daejeon, and Gwangju expanded their shares through local government-led accelerator programmes. Public participation remained significant: government-linked venture funds accounted for roughly 35% of total VC commitments in 2024, emphasising the policy-driven nature of Korea’s venture market.
Overall, the 2022–2024 cycle demonstrated both the sensitivity and resilience of Korea’s venture ecosystem. While the surge in interest rates initially dampened liquidity and valuations, the stabilisation of financial markets and structural policy support have set the stage for a gradual recovery. The 2024 rebound, led by AI, semiconductors, mobility, and green technologies, signifies a maturing venture environment increasingly aligned with Korea’s long-term innovation and sustainability agenda.
KRW billion
Source: Korea Venture Capital Association, “Venture Capital Market Brief”, 2013 Q1-2024 Q4.
Since 2015, South Korea’s banking sector has experienced a steady improvement in asset quality, although this progress began to plateau after 2022 amid the prolonged high-interest-rate environment. The non-performing loan (NPL) ratio, defined as the share of loans classified as substandard, doubtful, or loss, fell consistently from 3.7% in 2015 to 1.45% in 2019, reflecting a decade-long trend of enhanced credit screening and strengthened capital buffers. During the COVID-19 period (2020–2021), the NPL ratio continued to decline due to massive policy interventions that deferred repayments and extended maturities across all financial sectors. At the end of 2021, the total NPL ratio in the banking system stood at just 0.91%, and for SME loans, at a record low of 0.60%, marking one of the healthiest asset-quality profiles among OECD economies.
However, this favourable trend gradually reversed as policy supports began to normalise and financial conditions tightened. In 2022, the overall NPL ratio ticked up slightly to 0.68%, and the SME-specific ratio to 0.56%. As interest rates continued to rise and real-estate project finance (PF) stress deepened, NPLs increased further in 2023 and 2024. According to the Financial Supervisory Service (FSS), by the end of 2024, the SME NPL ratio had risen to approximately 0.83%, while the system-wide figure climbed to around 0.85%. Although these levels remain low by international standards, they represent a clear inflection point, driven by the expiry of loan-maturity extensions, elevated debt-service burdens, and rising defaults in property-related credit.
The deterioration was most evident in construction and real-estate-linked lending, where project-finance delinquencies surged following the 2022 Legoland incident and subsequent funding-market stress. While large commercial banks were relatively insulated due to diversified portfolios and higher provisioning, non-bank financial institutions (NBFIs),including securities firms and savings banks, experienced rising arrears in SME and PF loans. To contain spillover risks, regulators required enhanced loan-loss provisioning and introduced a PF stress-test regime in 2023. Additionally, the Ministry of SMEs and Startups, together with policy banks, expanded targeted restructuring and guarantee support for viable but liquidity-constrained SMEs, aiming to prevent temporary delinquencies from escalating into full defaults.
Parallel to the modest rise in NPLs, payment delays on short-term SME loans have also increased since 2019, indicating heightened cash-flow pressures among smaller firms. The average payment delay, measured by the number of days past due, declined steadily from 13.3 days in 2016 to 7.4 days in 2018, marking a peak in payment discipline. Thereafter, the trend reversed: delays averaged 8.4 days in 2019, 8.5 days in 2020, 8.6 days in 2021, and 9.2 days in 2022. Updated 2024 data show that the average delay further increased to about 9.6 days in 2023 and remained around 9.5 days in 2024, underscoring persistent liquidity tightness in the SME sector. These prolonged payment cycles are particularly pronounced among microenterprises in retail, construction, and local services, sectors most affected by higher borrowing costs and slower domestic demand recovery.
While the overall level of non-performing assets remains manageable, the shift in trajectory since 2022 suggests that the post-pandemic normalisation phase is exposing underlying credit vulnerabilities. The gradual withdrawal of extraordinary support measures, coupled with sustained high interest rates, has differentiated borrowers by resilience: export-oriented and technology-intensive SMEs have maintained stable repayment performance, whereas domestic-demand-oriented firms are struggling with refinancing and cash-flow management. Going forward, regulators emphasise early-warning monitoring, pre-emptive restructuring frameworks, and selective liquidity assistance to safeguard SME solvency. The evolution of the NPL and payment-delay indicators through 2025 will thus serve as a key gauge of whether Korea’s financial system can achieve a soft landing in its transition to a post-crisis credit environment.
Public policy has continued to underpin SME resilience. During 2023–2024, the Korean government expanded its support for digitalisation, green transition, and export diversification, notably through the K-Smart Factory 3.0 initiative, the SME Green Transition Fund, and digital voucher programmes aimed at improving productivity and reducing fixed costs. Meanwhile, financial support mechanisms, such as loan-maturity extensions, repayment deferral, and credit guarantees for lower-rated borrowers, helped mitigate liquidity pressures amid sustained high interest rates. However, structural challenges persist. Labour shortages in manufacturing, slower productivity gains, and regional imbalances between Seoul metropolitan and provincial clusters continue to hinder competitiveness.
Below are some of the most longstanding policies to foster SME access to finance.
Since April 2020, South Korea has operated one of the world’s longest-running loan-relief programmes for small and medium-sized enterprises (SMEs) and self-employed individuals affected by the COVID-19 crisis. The “Loan Maturity Extension and Repayment Deferral System,” jointly administered by the Financial Services Commission (FSC), Financial Supervisory Service (FSS), and major financial industry associations, initially provided blanket extensions and deferrals to borrowers with temporary liquidity shortages. The programme was extended six times in six-month increments through September 2023, before transitioning into a phased “soft-landing framework.”
Under this framework, borrowers eligible for maturity extension can maintain existing loan terms, typically renewed every 6 or 12 months, until September 2025. Meanwhile, borrowers in the repayment deferral category, whose principal and interest repayments were postponed during the pandemic, must follow customised repayment schedules agreed upon with their financial institutions. According to the FSC’s 2024 assessment, deferred amounts can be repaid gradually over a maximum period of 60 months (five years), with up to one year of grace on deferred interest.
The scale of deferred loans has declined steadily as the normalisation progressed: from KRW 100 trillion (430 000 borrowers) at the end of September 2022 to KRW 76 trillion (350 000 borrowers) by mid-2023, and further down to KRW 53 trillion as of late 2024. The government emphasised a case-by-case restructuring approach, encouraging early repayments by firms with sufficient cash flow while providing flexible rescheduling for viable but liquidity-constrained borrowers. The FSC and FSS also strengthened on-site monitoring of financial institutions to ensure that repayment pressures did not trigger a sudden wave of SME insolvencies during the programme’s wind-down phase.
To accompany the expiration of blanket forbearance, authorities introduced the “SME Debt Adjustment and Soft-Landing Programme” in early 2023. This initiative, co-ordinated by the Korea Asset Management Corporation (KAMCO) and Credit Guarantee Fund (KODIT), provides tailored restructuring and partial debt write-offs for firms assessed as viable but facing temporary distress. The programme aims to prevent liquidity problems from turning into solvency crises by linking debt restructuring with business-model improvement plans. As of December 2024, more than 21 000 SMEs had benefited from customised repayment plans or principal reductions under this framework.
Simultaneously, the FSC launched the “Corporate Credit Recovery Programme” targeting small self-employed businesses transitioning out of pandemic support. This scheme facilitates negotiated rescheduling of delinquent loans, offers a credit score recovery mechanism, and helps eligible borrowers regain access to bank credit. For microbusiness owners with low credit ratings, the government maintains specialised refinancing channels via regional credit guarantee foundations, offering guarantee-backed loans with lower interest rates (typically 4–5%) to replace high-cost informal borrowing.
In the aftermath of the Hope Loan Plus programme (KRW 10 trillion, launched in January 2022), a series of follow-up programmes have been implemented to ensure continued liquidity access amid tighter monetary conditions:
Hope Loan Step-Up (2023): A successor to the original scheme, providing low-interest refinancing for existing Hope Loan Plus borrowers whose initial two-year grace periods ended. Loan limits were expanded to KRW 30 million, with average rates of 2–3%, subject to credit reassessment.
Credit Safety Net for Vulnerable Borrowers (2023–2025): Introduced by the FSC to support self-employed and SME borrowers in the bottom 20% of the credit spectrum. Through collaboration with regional credit guarantee foundations, this programme guarantees up to KRW 20 million per borrower and includes temporary interest subsidies of up to 2 percentage points.
Special Guarantee for Low-to-Medium Credit Entrepreneurs (Ongoing): First launched in 2021 and expanded in 2023, this policy continues to offer five-year, guarantee-backed loans of up to KRW 20 million for individuals who have recovered from delinquency or experienced a sales decline of 20% or more. The government allocated KRW 1.2 trillion for the 2024 cycle, prioritising retail, hospitality, and logistics sectors.
By 2025, the pandemic-era relief architecture is nearing completion, marking a shift from broad liquidity support to targeted credit restructuring and risk-based policy finance. The success of the maturity-extension programme in preventing large-scale SME defaults during the pandemic has been widely acknowledged. Yet, its gradual unwinding also reveals structural challenges: weaker firms face refinancing risks, and banks are tightening credit standards as they reprice risk in the post-forbearance environment.
Going forward, the FSC and policy banks are focusing on three priorities:
Strengthening preemptive restructuring mechanisms through early-warning systems and data-driven credit scoring for SMEs;
Reducing reliance on government guarantees by improving market-based SME credit assessment; and
Enhancing co-ordination between commercial banks and policy institutions to avoid sudden credit contractions during policy normalisation.
Ultimately, Korea’s transition from blanket support to selective assistance reflects a broader policy evolution, from short-term crisis relief towards a sustainable, market-oriented SME financing framework designed to foster resilience in a high-interest-rate environment.
Source: See Table 2
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