The operator of the all-you-can-eat meat restaurant chain Myeongryun Jinsagalbi has been found to have provided high-interest loans to franchise owners using low-interest policy funds. Financial authorities plan to block this structure that shifts financial burdens onto franchisees.
On May 10, the Financial Services Commission and the Fair Trade Commission announced measures to address high-interest improper loans by franchise headquarters utilizing policy funds. This follows an investigation prompted by the Myeongryun case, which revealed three instances of franchise headquarters offering high-interest loans to franchisees after receiving policy fund loans, along with one additional case.
According to the authorities' investigation, Myeongryun borrowed low-interest funds at an annual rate of 3-6% from policy financial institutions such as the Industrial Bank of Korea. Subsequently, it lent approximately 89.9 billion won to 13 affiliated lending companies established by its major shareholder, which then provided franchisees with high-interest loans ranging from 12-18% under the guise of covering renovation costs.
The total amount of loans executed for Myeongryun franchisees reached 145.1 billion won from September 2022 to August of the previous year. The investigation also uncovered evidence that the affiliated lending companies managed their total assets to remain below 10 billion won to evade registration requirements with the Financial Services Commission, suggesting a practice known as “splitting registration” to avoid scrutiny by the Financial Supervisory Service. However, it is reported that Myeongryun has since returned all its lending licenses.
Similar structures were identified in other franchise headquarters. One franchise utilized 1.2 billion won in bank funds at an annual rate of 4% backed by the Korea Credit Guarantee Fund, while its CEO's affiliated lending company provided loans totaling 11.4 billion won at an interest rate of 13% to 112 franchisees.
The authorities are concerned that franchise headquarters may expand their businesses using low-interest policy funds while imposing high-interest loan burdens on franchisees. Notably, it was found that loans received by franchisees were often used for opening costs such as renovations, with repayments linked to sales or added to payments for essential supplies.
In response, the Financial Services Commission will strengthen management of policy loans to franchise headquarters. Moving forward, policy financial institutions must verify whether franchise headquarters hold loans to franchisees when providing new loans or guarantees. They will also check for misuse of funds and monitor changes in loan amounts or new loans at the time of maturity extensions.
If inappropriate high-interest loans to franchisees are confirmed, the supply of policy funds will be restricted. New policy loans and guarantees will be halted, and existing loans and guarantees will face limitations on maturity extensions or be encouraged to adopt installment repayments. However, if franchise headquarters voluntarily reduce loan interest rates or resolve issues, they will be exempt from these restrictions.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.