A total of 30 trillion won will be implemented from October to help the self-employed and small business owners affected by the novel coronavirus infection (COVID-19). The government plans to introduce a strict screening process to prevent moral hazard and nullify debt adjustment if false documents are submitted or intentionally delayed.
The Financial Services Commission announced on the 28th a customized debt adjustment program for small business owners (New Startup Fund) containing these details.
The target of support for the Startup Fund is vulnerable borrowers among individual entrepreneurs and small business owners (including corporations) who have been affected by COVID-19. There must be a history of receiving disaster aid or loss compensation, such as loss compensation for business operators, or using measures to extend maturity or defer repayment.
It also applies to bad borrowers who have been delinquent for more than 3 months on one or more loans, or borrowers who are concerned about bad debts, such as closed business or closed business for more than 6 months. The Financial Services Commission explained, “Freelancers such as tutors or special type workers can apply if they meet the standards of a small business as a sole proprietor or corporate business owner.” However, it is excluded when a borrower who intentionally delinquents in order to meet the application qualifications or a person with high net worth applies for a small debt reduction. If any of the applicants are found to have submitted false documents or intentionally overdue after debt reconciliation, the debt reconciliation will be immediately nullified and new applications will be banned.
The Startup Fund applies to all loans (regardless of businesses, households, collateral, guarantees, and credit) held by affiliated financial companies that have joined the ‘Startup Fund Agreement’, except for loans that are unrelated to COVID-19 damage or related to real estate rental/sales business. do. In addition, in order to limit the cases of intentional and repetitive debt adjustment applications, only one request for debt adjustment can be made during the application period, and the adjustment limit is limited to KRW 1.5 billion, with collateralized KRW 1 billion and unsecured KRW 500 million.
In addition, customized debt adjustment support will be provided according to the borrower’s credit status and loan type.
For example, if you apply for adjustment of guarantee/credit debt, you will receive principal adjustment support for 60-80% of your net debt according to Track 1. When the debt is greater than the assets, interest and arrears are reduced and exempted, and the deferral period for deferring the amortization payment is supported for a maximum of 0 to 12 months, and the amortization period is supported for 1 to 10 years.
Track 2 is applied to the case where the insolvent borrower applies for the adjustment of the collateralized debt or the borrower who is concerned about the insolvency applies for the collateral/guarantee/credit debt adjustment, etc. Only the excess high interest rate is adjusted to 9% interest rate. In this case, the grace period is 0 to 12 months (0 to 36 months for real estate-secured loans), and the amortization period is from 1 to 10 years (1 to 20 years for real estate-secured loans). Interest deferral is possible up to one year during the grace period.
The FSC estimated that the 30 trillion won (US$30 billion) new Startup Fund would help relieve the burden on 300,000 to 400,000 small business owners. It is 5-6% of the 660 trillion won in financial debt held by a total of 2.2 million self-employed and small business owners eligible for support.
The FSC plans to provide detailed guidance and consultation on the use of the New Start Fund through the launch and operation of a separate call center in September. The government plans to first accept applications for debt adjustment for one year through online platforms scheduled to open in October or offline on-site counters such as the Financial Integration Support Center for low-income earners.
By Park Hyun-joon, staff reporter [email protected]
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