Last-ditch loans hamstrung by bureaucratic bottlenecks

Smaller companies are having a tough time getting loans from banks despite a program designed to make it easy for them to access credit during the coronavirus outbreak.

The application process itself is a major bottleneck.

Since Feb. 13, “Corona Loans” have been offered by commercial banks. They are aimed at supporting small- and medium-sized enterprises suffering as a result of the coronavirus outbreak.

The funds being lent by the banks are ultimately backstopped by the central bank, which extends credit to the banks to balance their Corona Loan obligations.

Despite this strong support, very few loans have been issued.

As of Friday, a total of 43,093 applications were filed with the Small Enterprise and Market Service (SEMS), an organization under the Ministry of SMEs and Startups, since the program began. Applications for 2.234 trillion won ($1.9 billion) worth of credit were lodged.

Only 3.7 percent of the applications were accepted.

In the three weeks since the first application was received, the number of applications filed was 10 times those submitted during the Middle East respiratory syndrome outbreak in 2015.

The process for applying is complicated and confusing.

After receiving approval from SEMS, an applicant must be granted a guarantee from a regional branch of the Korea Federation of Credit Guarantee Foundations. The whole process takes about two months. It used to take two weeks but has been significantly slowed due to the lack of manpower.

Additional paperwork to be submitted includes a business registration certification, tax returns, state health insurance premium payment receipts and records showing a year-on-year decrease in sales for certain months.

Business owners are discouraged. They like to say that by the time they finish the application, they would be out of business anyhow.

“If there is a missing document, the whole process starts over,” said Mr. Kim, 37, who visited the Daegu branch of SEMS.

To support companies and self-employed people, the Bank of Korea increased the limit on the loans from 25 trillion won to 30 trillion won from Monday. If banks grant loans, the Bank of Korea will later provide them with low-interest funds.

Critics say that raising the cap is little more than a publicity stunt, as only 68 percent of the total 25 trillion won limit has been utilized anyhow.

Some companies in need of funds can’t get credit extended, according to the Korea Chamber of Commerce and Industry.

A food service company in Busan that supplies school meals is facing difficulty due to the delayed start of the spring semester. SEMS rejected the request on the grounds that the company has no business activity at present.

A rental car company in Seoul was declined. The nature of the rental car business makes it difficult to qualify for loans due to relatively low credit ratings.

“Companies in a crisis won’t feel the support if the procedures are so complicated,” said Shin Kwan-ho, an economics professor at Korea University. “The measures that are common to all companies, such as funding, tax cuts, various investigations and deferred payment funds, need to be implemented together.”

The supplementary budget bill crafted by the ruling Democratic Party is criticized for only focusing on expanding loans, which merely increases debt.

“The government is more focused on expanding funds than providing on-site support,” Kim Tae-gi, an economics professor at Dankook University, said. He believes that this is the result of armchair policy making by officials who do not visit the locations of the businesses.

The government will simplify the process by enabling SEMS confirmation online, and it will increase manpower to process the requests.

BY SOHN HAE-YONG [kim.yeonah@joongang.co.kr]