The South Korean financial authorities will completely abolish joint guarantees for small businesses associated with primary collateralized bond obligations (P-CBO). A new program will lower the guarantee threshold for early-stage startups, and financial support for small businesses will be expanded to over 12 trillion won.
On September 21, the Financial Services Commission held its 14th Policy Finance Support Council, where it discussed financial support measures for startups, small businesses, and medium-sized enterprises.
First, the Korea Credit Guarantee Fund and the Korea Technology Finance Corporation will eliminate joint guarantees for small business P-CBOs. The government had fully abolished joint guarantees for small businesses at public institutions in April 2018, but they continued to apply to P-CBOs. As of the end of last year, the outstanding balance of joint guarantees for small business P-CBOs was approximately 45 trillion won, affecting around 3,000 companies.
Companies exempt from joint guarantees will be subject to a new 'responsible management review.' This review will assess the actual management control, creditworthiness, and any litigation or criminal records of the business. Companies that pass the review will be exempt from joint guarantees. Existing P-CBOs will also have joint guarantees removed if they pass the review during the refinancing process after maturity. Relevant regulations will be revised and implemented within this month.
A new 'Startup Build-Up Program' will also be established for early-stage startups. Companies in new growth sectors within three years of establishment can receive up to 100 million won in the first year, which can increase to 200 million won in the second year if growth potential is confirmed. After graduation, repayment of the principal will be deferred for three years, easing the repayment burden for up to five years.
The Korea Credit Guarantee Fund will provide 100% guarantees, and the Industrial Bank of Korea will offer preferential loan rates. The guarantee fee rate in the first year will be 1.0%, with a maximum interest rate reduction of 1.2 percentage points. In the second year, the guarantee fee rate will be 0.7%, with a maximum interest rate reduction of 1.5 percentage points. Graduated companies can receive up to 20 billion won in guarantee support through follow-up programs tailored to their growth stages.
Financial support for small businesses will also be expanded. The 'Small Business Dream Package' from the Industrial Bank of Korea and the Korea Credit Guarantee Fund will increase from the existing 10.5 trillion won to over 12 trillion won. As of August this year, 57 trillion won has been supplied, and specific expansion plans will be announced by the end of this month.
The Korea Development Bank, Industrial Bank of Korea, Korea Credit Guarantee Fund, and Korea Technology Finance Corporation plan to supply a total of 251.9 trillion won this year. Of this, approximately 150 trillion won will be allocated to five key sectors, including advanced strategic industries, with 101.5 trillion won supplied by June, achieving 67.6% of the annual target.
* This article has been translated by AI.
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