'I paid mine back.' South Korea's COVID debt relief plan divides small-business owners

Kim, a 42-year-old who ran a bar, could not survive the COVID-19 pandemic and shut down in 2022. Even after closing, he kept working — delivering food during the week and driving for a designated-driver service on weekends — and over roughly three years paid back every won of his 20 million won ($14,500) loan. "Back then, a lot of people around me said, 'Why bother paying it all back? If things get bad enough, the government will end up forgiving it,'" he said. "I thought a promise was a promise." Now, he said, the phrase he least wants to hear is: "See? I told you — just hold out long enough."

Lee, a 29-year-old who opened a restaurant in 2019, takes a more sympathetic view of small-business owners who have fallen into long-term default. Because table-service restaurants cannot easily shift sales to delivery, he weathered the COVID-19 blow by borrowing. He is still repaying his loans, and the burden has grown heavier as interest rates have risen.

"A lot of people would be able to breathe again with just a restructuring — not even a full write-off," Lee said. "If anything, I think this policy came too late." He added that many business owners who somehow held on through COVID, himself included, are now in an even harder spot because of rising rates.

The government unveiled a support package for vulnerable borrowers on Friday, announcing it would begin writing off and restructuring long-overdue COVID-19 debts owed by self-employed workers and small-business owners starting next year. The measure targets unsecured loans held by financial institutions and public institutions that went into default before June 2023 and have remained delinquent since.

The primary beneficiaries are not simply borrowers struggling with high interest costs, but those who have gone more than three years without making a normal repayment. Of the 358.7 trillion won in loans extended to sole proprietors during the COVID-19 period, 154.7 trillion won remains outstanding, of which 6.3 trillion won is more than three months overdue.

The Korea Federation of Small and Medium Business welcomed the government's plan, arguing that small-business owners were forced into debt to survive after cooperating with business restrictions and closures during COVID-19 without receiving adequate loss compensation. The federation described the long-overdue debt restructuring as "a genuine ladder back to recovery" and said preferential interest rates, reduced guarantee fees, and expanded loan limits for diligent repayers would "address equity concerns and minimize the relative sense of deprivation felt by those who kept up with payments."

Voices from the ground also reflect a real need for support for long-term defaulters. "Among those who qualify for support, there are many whose lives have completely fallen apart — people who haven't been treated with basic human dignity," one small-business owner said. "Equity matters, but I hope this time the government also considers people who truly haven't been treated like human beings." Another self-employed worker, who finished repaying debts this year, said: "I'd still choose to repay rather than live under the stress of debt collectors and money worries. But some of those people never had a choice. Who wants to go bankrupt on purpose?"

Yet the sense of grievance among diligent repayers is equally sharp. "I paid it all off over five years, a little each month, without ever missing a payment — and now I just feel hollow," one business owner said. "I worked to pay off my debts even when my parents were at death's door. I feel like an idiot." Another said: "Helping people in difficulty is right, but the problem is when it becomes a system most people exploit. I paid off four loans without a single missed payment and I'm still working through two more — and now I regret it."

The government, aware of the equity backlash, included a parallel package for diligent repayers: a 0.3 percentage-point preferential rate on policy loans from the Small and Medium Business Market Service and an increase in the support ceiling to 200 million won, among other measures. The Industrial Bank of Korea will also expand its Hope Dream Loan program for small businesses. Even so, complaints are surfacing that the measures are lopsided — long-term defaulters may have their principal written off or reduced, while diligent repayers receive little more than a modest rate discount.

Some are calling for an alternative: instead of erasing principal, sharply cut interest rates and extend repayment periods so borrowers can pay in full over time. "I think the right approach is to extend the repayment period — five years, or even longer — bring rates down to the lowest possible level, and still require people to repay the principal in the end," one small-business owner said. Another said: "If someone has repaid for more than a year without missing a payment, make it easier to get a rate reduction. And if they've been repaying for a certain period, let them roll everything into a single low-interest loan. Even a little help for people fighting to avoid a bad credit rating would buy them the time they need to clear their debts."

The question of what to do for small-business owners who have already failed also remains unresolved. Those who have already closed their businesses are not covered by the current debt write-off and restructuring plan. How to address the equity gap with those who could not hold on and have already gone through personal rehabilitation or bankruptcy proceedings is another challenge the government has yet to answer. Among small-business owners, the questions are already being asked: "If the target is people who have been delinquent for more than three years, what happens to those who couldn't hold out and shut down in the meantime?" and "People who have already closed should be able to receive similar support."

The government plans to finalize specific criteria — including which debts qualify and the extent of any reduction — in the fourth quarter of this year. How well the policy manages to help long-term defaulters get back on their feet while also easing the sense of deprivation felt by diligent repayers and those who have already closed or entered rehabilitation will likely determine how broadly it is accepted.