Small Business Owners Get into Debt to Stay Afloat

The amount of loans taken out by small business owners increased a record 12.1 percent or W6.4 trillion in the third quarter of this year as small businesses desperately try to stay afloat (US$1=W1,178).

Small businesses took out more loans to finance running costs rather than to expand facilities, demonstrating that most of them were simply trying to keep their head above water.

The Bank of Korea said Wednesday that corporate loans reached W1,183.7 trillion as of the end of the third quarter, up W20.5 trillion compared to the previous quarter.

Loans taken out by manufacturers increased W1.9 trillion, but money borrowed by service-sector businesses increased by W16.1 trillion. Among service sector borrowings, loans taken out by owners of small retail and wholesale stores, B&Bs and restaurants increased by W6.4 trillion, up significantly compared to last year and accounting for 30.6 percent of total service-sector loans with W220 trillion.

The loans were primarily used to cover payrolls and other running costs, increasing by W11.2 trillion. In contrast, loans to cover facility investments, such as store expansion or renovation, grew by only W4.9 trillion.