Closure risk peaks in first 3 years, debt delinquency in years 5–10: the hard math of running a business

As prolonged high interest rates make it harder for businesses to raise funds, corporations under three years old are proving especially vulnerable to closure, while those in their fifth through tenth year face a heightened risk of falling into arrears. Closure rates decline as companies age, but delinquency rates are higher among firms that have moved past the early startup phase — a sign that survival risks and cash-flow pressures play out very differently depending on how long a company has been in operation.

An analysis of corporate data from Kodata, which holds the country's largest business information database, showed that the closure rate for for-profit corporations less than three years old reached 1.24% in the second quarter of this year, topping the overall average of 0.75% — the highest of any age bracket examined. "Among all age groups, only corporations under three years old saw their closure rate rise — up 0.06 percentage points year-on-year and 0.16 percentage points quarter-on-quarter," Kodata said.

The trend for early-stage firms ran counter to the broader picture. The overall corporate closure rate fell 0.04 percentage points, from 0.79% in the second quarter of last year to 0.75% in the second quarter of this year. Over the same period, the rate for firms under three years old moved in the opposite direction, climbing from 1.18% to 1.24% — a 0.06-percentage-point increase. Compared with the first quarter of this year, when the rate stood at 1.08%, the latest figure is 0.16 percentage points higher. A total of 3,127 corporations under three years old closed in the second quarter of this year.

By contrast, closure rates fell steadily as companies aged. The rate was 0.97% for firms three to five years old and 0.76% for those five to ten years old. It dropped further to 0.42% for firms ten to twenty years old and to 0.23% for those with more than twenty years of operation. "Closure rates for corporations aged ten to twenty years and those over twenty years have remained stable at current levels, with the exception of the first quarter of this year," Kodata said.

As elevated interest rates persist, the financial burden on businesses is growing. The total number of active for-profit corporations reached 1,125,962 in the second quarter of this year, up 35,130 from a year earlier. Of those, 35,388 carried overdue debt — an increase of 1,422 from the second quarter of last year. The overall delinquency rate edged up 0.03 percentage points over the same period, from 3.11% to 3.14%.

The delinquency rate was highest among firms five to ten years old. At 4.98% in the second quarter of this year, it exceeded the overall average of 3.14% by 1.84 percentage points, meaning roughly one in every 20 active corporations in that age bracket carried overdue debt. The figure measures the share of active for-profit corporations with outstanding overdue amounts at the end of the quarter, not the ratio of overdue amounts to total loan balances. The number of delinquent firms in that bracket rose from 13,965 in the second quarter of last year to 15,363 in the second quarter of this year, an increase of 1,398.

Corporations aged ten to twenty years also saw their delinquency rate climb consistently. Starting at 3.45% in the second quarter of last year, the rate rose to 3.53% in the third quarter, 3.57% in the fourth quarter, 3.68% in the first quarter of this year and 3.74% in the second quarter — four consecutive quarters of increases. The year-on-year rise of 0.29 percentage points was the largest of any age bracket examined. The number of delinquent firms in that group also grew, from 8,103 to 9,612 over the same period.

The delinquency rate for corporations over twenty years old also rose, from 2.23% in the second quarter of last year to 2.33% in the second quarter of this year, indicating that even long-established businesses are feeling greater financial strain. In contrast, the delinquency rate for firms under three years old fell from 0.83% to 0.65% over the same period, and the rate for firms three to five years old declined from 3.84% to 3.33%. "The delinquency rate for corporations aged ten to twenty years is consistently rising," Kodata said.

With high interest rates showing no sign of easing, businesses face a prolonged burden of principal and interest repayments. According to the Financial Supervisory Service, the delinquency rate on won-denominated loans at domestic banks stood at 0.69% at the end of August, up 0.06 percentage points from 0.63% at the end of the previous month — the highest level since October 2016, when it reached 0.81%.

Stress is also visible in corporate loan delinquency rates at domestic banks. The rate on corporate loans stood at 0.86% at the end of August, up 0.08 percentage points from the previous month. The delinquency rate on loans to small and medium-sized enterprises reached 1.00%, rising 0.09 percentage points in a single month. The rate for small and medium-sized corporations stood at 1.10%, up 0.10 percentage points, while that for sole proprietors came in at 0.86%, up 0.09 percentage points.