'Open-run' frenzy: The first-come, first-served scramble for small-business policy loans

Every time a government policy loan for small-business owners opens for applications, the same scene plays out: a frantic rush the moment the window opens at 10 a.m. The scramble is driven by interest savings that can run into the millions of won compared with commercial lenders. Funds close quickly because each round is capped at around 10 billion won ($7.45 million) — enough to benefit only about 100 borrowers nationwide at the maximum loan amount of 70 million won. Critics say the first-come, first-served structure is further fueled by the direct-lending model that bypasses banks, a "close when funds run out" intake policy, and post-application eligibility screening.

According to industry sources, the Small Enterprise and Market Service opened applications for its September round of the temporary business hardship fund at 10 a.m. Monday. The intake window closed in a matter of minutes. "It is difficult to say exactly how many minutes it took, but it is true that applications closed in a short time," a SEMAS official said.

The temporary business hardship fund is a policy-finance program that provides working capital to small-business owners facing short-term difficulties such as falling sales. Eligibility is generally limited to operators with annual sales below 104 million won and fewer than seven years in business whose sales have dropped at least 15 percent compared with a reference period. The maximum loan per business is 70 million won, with a five-year term that includes a two-year grace period during which borrowers pay only interest and no principal.

The loan carries a variable rate of 3.85 percent per year — the policy-fund benchmark rate for the third quarter of this year — with no additional spread. Borrowing the full 70 million won over five years, with a two-year grace period followed by three years of equal principal repayments, would cost 9.54 million won in total interest through SEMAS, compared with 14.4 million won at the five major commercial banks' average lending rate of 5.81 percent. That makes the SEMAS policy loan roughly 4.86 million won cheaper.

The direct-lending structure is another draw. SEMAS accepts applications, conducts its own review, and disburses funds itself — unlike agency loans, which require separate guarantee reviews by a credit guarantee institution and additional bank screening. For small-business owners whose sales have declined and who face tighter commercial-bank lending standards, the temporary business hardship fund offers a comparatively accessible source of capital.

A rising interest-rate environment has also intensified demand for policy funds. The Bank of Korea's Monetary Policy Board raised the benchmark interest rate by 0.25 percentage point to 3.00 percent from 2.75 percent on Aug. 27, the second consecutive monthly increase following a hike in July. The central bank said it would "determine the timing and pace of further increases" in its future monetary policy, leaving the door open to additional rate hikes.

With market rates expected to climb further, small-business owners appear to be rushing to lock in long-term working capital at below-market rates before conditions worsen. The two-year grace period on principal repayment is an added incentive for operators with tight cash flow.

The loan budget comes from government appropriations. The Ministry of SMEs and Startups added 70 billion won to the temporary business hardship fund as part of this year's first supplementary budget — a larger sum than the 50 billion won originally allocated in the main budget.

The problem, however, is that as long as the near-first-come, first-served intake structure remains in place, the open-run phenomenon will keep repeating regardless of how much funding is added. The temporary business hardship fund accepts applications over a set period and closes intake once the budget is exhausted. Because the chance of receiving funds diminishes the later one applies, applicants flood in the moment the window opens.

A further concern is the gap between the application stage and actual eligibility screening. Applicants first submit an online form, after which SEMAS reviews their eligibility, creditworthiness and business viability. Clearing the intake stage does not guarantee a loan. If ineligible applicants join the rush, qualified small-business owners may lose their chance to apply. "Simplified-tax-regime operators are the only eligible borrowers, but general-tax-regime operators also apply, which makes competition even fiercer," a SEMAS official said. "General-tax-regime applicants are filtered out and do not receive loans."