605 businesses shut down within a month of receiving guarantees, data shows

A total of 605 businesses that received guarantees from regional credit guarantee foundations across the country this year shut down within just one month of receiving support, according to newly released data. Last year, the figure stood at 960. With hundreds of businesses also closing within 30 days of receiving policy loans from the Small Enterprise and Market Service each year, calls are growing for a comprehensive review of the screening and post-management systems across policy finance institutions under the Ministry of SMEs and Startups.

Data submitted to the office of Rep. Heo Seong-mu by the Korea Federation of Credit Guarantee Foundations, released Monday, showed that from January through July this year, 605 businesses closed within one month of receiving guarantees from regional credit guarantee foundations, with the total guarantee amount reaching 17.8 billion won ($13.2 million). The number of businesses closing within one year reached 12,976, with a combined guarantee value of 395 billion won.

Last year, 960 businesses closed within one month of receiving guarantees, with the total guarantee amount standing at 27.8 billion won. In 2024, 980 businesses closed within a month of receiving guarantees, and in 2023 the figure was 1,243. This year, 605 businesses had already closed by July, with guarantees totaling 17.8 billion won.

Extending the window reveals an even larger problem. Last year, 2,550 businesses closed between one and three months after receiving guarantees, 4,452 closed between three and six months, and 10,539 closed between six months and one year. Combined with the one-month closures, 18,501 businesses shut down within a year of receiving guarantees last year.

Among the most notable ultra-short-term closure cases at the federation, one business that received a guarantee of 199 million won closed within a month citing poor sales, while two others — backed by 113.62 million won and 100 million won respectively — shut down for the same reason. A business that received 150 million won closed its existing operation and re-registered under a new business entity, while another that received 103.6 million won cited the owner's deteriorating health as the reason for closure.

A key concern is that policy finance institutions do not classify a closure as a "default" if the borrower continues to make normal loan or interest repayments after shutting down. An official at the Small Enterprise and Market Service said that when interest or principal repayments are being made on schedule, a closure is not immediately treated as a default, adding that some businesses close in order to launch a new venture.

A business may close its doors while loan repayments continue normally from the account for an extended period — a situation that would not immediately appear in conventional financial default or delinquency statistics. This points to the need for post-management mechanisms that go beyond tracking repayment status, including checks on whether the borrower intended to continue operating at the time of the loan and whether the funds were actually used for business purposes.

The number of businesses that closed within one month of receiving policy loans from the Small Enterprise and Market Service last year reached 467, with a combined loan amount of 12.6 billion won. From January through July this year, 319 businesses closed within a month of receiving support, with loans totaling 9.2 billion won. In 2024, 472 businesses closed within a month after receiving 12.3 billion won in loans, and in 2023, 465 businesses closed after receiving 13.2 billion won.

The Small Enterprise and Market Service has put in place separate post-management procedures to prevent recurrence of similar problems. During the loan application, screening and agreement process, it checks for business suspension or closure through National Tax Service inquiries and conducts on-site inspections as part of its business viability assessment. For credit-vulnerable small business owners and non-storefront operators who meet certain criteria, as well as cases where submitted documents or interviews raise suspicions of a de facto suspension, on-site inspections are mandatory.

Regional credit guarantee foundations also automatically query National Tax Service records on business suspension and closure using business registration numbers at the consultation stage. Applicant businesses undergo preliminary screening followed by both direct on-site and indirect investigations. However, on-site inspections may be omitted depending on product-specific handling standards, or when there are no significant changes compared with a recent prior inspection.

Korea Technology Finance Corporation recorded relatively few ultra-short-term closures. Although its direct guarantee supply last year totaled 31.36 trillion won, only one closure within 30 days of receiving support was recorded. That business, which had received a guarantee of 98 million won, closed 15 days later due to the death of its representative.

However, Kibo's overall guarantee default figures have grown. The value of direct guarantee defaults rose from 719.7 billion won in 2022 to 1.56 trillion won last year, while subrogation payments increased from 495.9 billion won to 1.43 trillion won over the same period. Kibo said it would verify business suspension and closure status through the National Tax Service at the application stage, conduct on-site inspections, and reduce the lag in detecting closures through continuous monitoring based on delinquency data and other signs of financial distress.

Korea SMEs and Startups Agency extended 4.1 trillion won in direct loans last year. Two businesses closed within 30 days of receiving support — one backed by 100 million won and another by 50 million won. The reasons cited were liquidity deterioration due to debt burden and sluggish sales amid intensifying competition.

The agency said it continues to analyze financial and credit conditions, including the credit status of business owners, through an early-warning system even after funds are disbursed. Its recovery rate on loans to businesses that closed within six months — classified as "short-term closures" — fell from 1.47 percent in 2024 to 0.10 percent last year.