Loan limits rise, rates fall as banks roll out AI credit model for small businesses

A man in his 30s who runs a retail and wholesale business recently applied for a loan through his bank's mobile app. He had expected to borrow no more than 30 million won ($21,800), given his low credit score, but was told the limit had been raised to 40 million won after his bank adopted the SCB — a small business credit scoring model. His interest rate also dropped by 0.7 percentage points.

A cafe owner with a thin credit history had repeatedly been turned away by banks because her credit rating sat at grade 7. After reapplying at a bank that had introduced the SCB, she was told her rating had been upgraded to grade 6 and her loan was approved.

Self-employed workers and small business owners with low credit scores will now be able to borrow more at lower rates through the SCB, which evaluates a borrower's future growth potential using non-financial data — such as sales figures and commercial district conditions — rather than creditworthiness alone. All 16 banks are expected to adopt the model by year-end.

Financial Services Commission Chairman Lee Eok-won visited Industrial Bank of Korea on Wednesday morning to hold a pilot forum on the SCB with industry representatives and small business owners, the FSC said.

The SCB is an AI-based credit assessment tool designed specifically for small businesses. It draws on non-financial data — including sales, business type and commercial district analysis — to gauge a business's future growth potential by sector. For small business owners with low credit scores but strong growth prospects, banks can raise their internal credit rating to extend larger loan limits or cut interest rates. A pilot test conducted in May confirmed that risk-assessment functions remained intact even when internal ratings were upgraded for higher-scoring businesses.

A small business owner surnamed Bae who attended the forum said the rising cost of ingredients and raw materials had put a heavy strain on finances, and that the existing loan limit had not been enough to cover what was needed. "Thanks to the additional limit recognized through the SCB, I was able to secure the operating funds I needed — it was a huge relief," Bae said.

Banks that completed the pilot test launched the trial run Monday. Eight banks — KB, Shinhan, Hana, Woori, NH NongHyup, Industrial Bank of Korea, Busan and Jeju — began first, with the remaining eight — Kakao Bank, K bank, Toss Bank, South Gyeongsang, Gwangju, Suhyup, iM and North Jeolla — set to follow later in the second half of the year. The number of participating banks was originally set at seven before being expanded to 16.

Each bank will use the SCB in screening new loan applications from sole proprietors, offering higher limits and lower rates to businesses with strong growth potential. Banks are also preparing linked support programs tied to the SCB.

Financial regulators and banks have jointly drawn up an "SCB operating guideline" that spells out how the model should be used and includes liability protections. The guideline details specific measures — loan approval, limit increases and rate reductions — that apply when an SCB rating rises, and exempts lenders from liability for losses unless they result from intentional misconduct or gross negligence.

Regulators also plan to incorporate the SCB into a sole-proprietor loan product set to launch in October, as well as into the guarantee screening and assessment processes of regional credit guarantee foundations.

"Introducing the SCB — which evaluates growth potential based on non-financial data such as sales, business type, commercial district and business characteristics that are difficult to capture under the existing credit history-based system — is a case that aligns with the spirit of inclusive finance," Lee said. "We will work closely with the financial industry and actively gather feedback from the field to ensure that more small business owners can be assessed on the basis of their future growth potential and access the funding they truly need."