Semiconductors, physical AI, data centers — but will big-business investment reach small suppliers?

"What are small and medium-sized enterprises supposed to do when they are rejected by the Korea Technology Finance Corporation? Where can these companies raise capital?"

The question President Lee Jae Myung posed at a Ministry of SMEs and Startups briefing at Cheong Wa Dae's banquet hall on Tuesday has put the challenges of technology-based financing squarely in the spotlight. His remarks were widely interpreted as a call to expand financial support for SMEs that have the technology but lack the collateral. They were also read as a direct acknowledgment that companies turned away by the Korea Technology Finance Corporation, known as KOTEC, effectively lose access to bank loans as well, cutting off their path to commercialization.

The timing of Lee's remarks is what makes them particularly significant. The government announced three mega-projects in June, unveiling plans for hundreds of trillions of won in large-conglomerate investment in semiconductors, physical AI and AI data centers. The central question since then has been whether the benefits will reach the smaller materials, parts and equipment — or "sobujiang" — companies and power-sector ventures that supply those industries. Kwon Hyung-taek, chairman of KOTEC, told reporters at the Korea Federation of SMEs in Yeouido, Seoul, on July 20 that "the AI transition at large companies like Samsung Electronics and SK hynix must translate into growth for small and medium-sized enterprises."

The real test is whether smaller downstream companies can actually ride the wave of the three national mega-projects. Data center cooling systems alone require dozens of specialized firms beyond chiller and cooling-tower manufacturers — heat exchangers, pumps, valves, piping, leak detection and water treatment, to name a few — yet companies with the technology but no track record of certified installations have repeatedly found themselves locked out of the market. Demand is also surging across the power supply chain, from transformers to circuit breakers, driving up capital and operating-fund needs for smaller suppliers. The "funding cliff for rejected companies" the president highlighted maps directly onto this problem.

The semiconductor and AI industries depend on a competitive ecosystem of materials, parts, equipment, power and manufacturing partners. Many of those companies lack sufficient collateral and rely on KOTEC guarantees to fund research and development and commercialization. KOTEC has recently moved to expand its semiconductor financing. On Wednesday, it signed an MOU with Hana Bank on a "semiconductor scale-up financial support" program, agreeing to broaden guarantees for small and mid-sized semiconductor companies using special bank contributions to increase the volume of guarantees it can supply.

The problem is that KOTEC's guarantee capacity is already approaching its limit. KOTEC issues guarantees funded by contributions from the government and financial institutions. The structure allows roughly 10 won in guarantees for every 1 won contributed, meaning the higher the operating multiplier climbs, the less room remains for additional guarantees. KOTEC's total outstanding guarantee balance currently stands at around 30 trillion won ($21.1 billion), and its operating multiplier is understood to be close to 10 times — the level considered appropriate.

"For the effects of the government's three mega-projects — semiconductors, physical AI and AI data centers — to spread to related small and venture businesses, research, development and commercialization funding must flow smoothly," a KOTEC official said. "KOTEC supplies guarantees to innovative companies that lack collateral or a financial track record, based on technology assessments, and supports the upstream and downstream industrial ecosystem of national strategic industries." Within the SME sector, many say KOTEC will need a significant injection of fresh capital before it can meaningfully expand its guarantee supply.

The president is also said to have raised the need for a stronger policy-finance role during the briefing, and industry watchers are now focused on how much government funding for KOTEC will be included in next year's budget proposal. A larger government contribution would expand KOTEC's guarantee capacity and allow it to increase financial support for semiconductor and AI materials, parts and equipment companies.