Small businesses have seen the proportion of new bank loans with interest rates above 6% more than double in the past year. Concerns are rising that increasing market interest rates and higher surcharges for low-credit businesses could worsen funding conditions for small enterprises.
According to the Bank of Korea's Economic Statistics System (ECOS) on October 15, the proportion of small business loans with interest rates above 6% reached 5.7% in August. This marks a 3.2 percentage point increase from 2.5% in the same month last year, the highest level in 20 months since December 2024, when it was 6.8%.
Throughout this year, the proportion has fluctuated but generally trended upward, rising from 3.4% in January to 4.8% in April and 5.0% in June, before dipping to 3.9% in July. However, it surged again by 1.8 percentage points in August. The share of loans with interest rates above 5% also expanded from 11.7% in August last year to 21.8% in August this year, indicating that more than one-fifth of new small business loans now carry rates above 5%.
The gap between small and large businesses has widened as well. The proportion of loans with rates above 6% for large businesses increased from 0.5% to 0.9% during the same period, widening the disparity from 2.0 percentage points to 4.8 percentage points.
The increase in high-interest loans is attributed to rising market interest rates, which have been influenced by the Bank of Korea's consecutive rate hikes in July and August. The one-year bank bond rate, a benchmark for corporate loans, stood at 3.776% at the end of August, up 1.267 percentage points from 2.509% a year earlier.
Low-credit businesses are facing increased surcharge burdens as well. The average interest rate for credit loans to small businesses rated 1-3 from the five major banks was 3.8% from June to August, up 0.12 percentage points from the same period last year. In contrast, the rate for those rated 7-10 rose to 10.31%, an increase of 0.39 percentage points. During the same comparison period, surcharges for ratings 1-6 decreased by an average of 0.29 percentage points, while those for ratings 7-10 increased by 1.25 percentage points.
In recent lending practices, small businesses continue to face high interest burdens. A representative from a major bank noted, "Even small corporations with average credit ratings are seeing loan rates starting in the high 5% range. Some loans executed recently have interest rates as high as 6.31%."
Park Jeong-eun, a professor at Ewha Womans University, stated, "Small businesses struggling with cash flow may find that rising loan rates increase their interest burdens, reducing their capacity for working capital needed for raw material purchases and wage payments. This could lead to a vicious cycle of reduced employment, research and development (R&D), and investment, ultimately diminishing their competitiveness."
* This article has been translated by AI.
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