South Korea's Small Business Loan Arrears Hit 16.4 Trillion Won as Sales Fall and Closed Shops Keep Their Debts

More overdue debt, less money coming through the till

South Korean sole proprietors had 16.4 trillion won in overdue loans in the third quarter of 2026, up 21.5% from a year earlier, while 505,000 businesses still carrying loans had already closed. The figures show two pressures building together: operating businesses are earning less, and debt continues to weigh on owners after they shut their doors.

Korea Credit Data (KCD), in its Small Business Trends Report released on November 10, put total outstanding loans to sole proprietors at 736.6 trillion won. That balance barely changed from the previous quarter, rising 0.1%, while overdue amounts increased 7.3%. Repayment problems were growing much faster than the amount borrowed.

The strain was concentrated outside the banking sector. Savings banks, mutual finance institutions and other lenders outside banks held 41% of outstanding loans but about 83% of overdue amounts. Among businesses borrowing from those lenders, 17.3% were closed, compared with 7.5% among bank borrowers.

Average quarterly sales per small business fell 4.36% from a year earlier to 46.61 million won. Profit dropped almost twice as fast, declining 8.30% to 10.20 million won as spending failed to fall at the same pace as revenue.

For owners, those figures describe a narrowing cushion between daily operating costs and loan payments. For lenders, they show repayment trouble spreading through a large pool of business debt. For people leaving self employment, separate government survey findings point to another difficulty: closing a business can end its sales without ending its financial obligations.

How arrears built up over three quarters

KCD put overdue loans at 13.5 trillion won in the third quarter of 2025, compared with 16.4 trillion won a year later, an increase of about 2.9 trillion won. The amount rose in each of the first three quarters of 2026, with growth accelerating again in July through September after slowing in the second quarter.

The quarterly sequence shows how the repayment pressure accumulated:

• First quarter of 2026: overdue loans reached 14.6 trillion won, rising 12.6% from the previous quarter.
• Second quarter: overdue loans reached 15.2 trillion won, increasing another 4.3%.
• Third quarter: overdue loans reached 16.4 trillion won, up 7.3% from the second quarter and 21.5% from a year earlier.

An overdue amount is money that has passed its scheduled payment date. Total outstanding lending includes the wider balance borrowers still owe, including loans being repaid on time. Looking at both figures together helps explain the change: the debt pool was nearly stationary, but a growing part of it was running into payment trouble.

Total outstanding lending increased 1.3%, or about 9.6 trillion won, from a year earlier. That annual growth was also far below the 21.5% rise in overdue amounts.

Why lenders outside banks face greater pressure

Banks held 434.6 trillion won in sole proprietor loans, or 59% of the total. Lenders outside the banking sector held 302 trillion won, or 41%. Yet the latter group accounted for 13.6 trillion won of the 16.4 trillion won in overdue debt.

Dividing those overdue amounts by the corresponding lending balances gives roughly 4.5% for lenders outside banks and 0.6% for banks, using KCD's rounded figures. The comparison shows how heavily repayment trouble was concentrated in the part of the market holding the smaller share of loans.

Savings banks recorded an overdue share of 6.0%, up from 5.7% in the previous quarter. Mutual finance institutions recorded 3.7%, up from 3.5%. These increases were 0.3 and 0.2 percentage points respectively. A percentage point measures the distance between two rates, rather than the percentage growth in the rate itself.

The banking sector's share of outstanding sole proprietor loans also fell from 59.7% a year earlier to 59.0%. Lee Min-je, chief executive of Korea Credit Data subsidiary Korea Credit Information (KCS), said balances outside banks had declined from the previous quarter, narrowing a source of funding for owners unable to obtain bank loans.

The Bank of Korea has identified repayment difficulties among self employed borrowers and high delinquency risk at lenders outside banks as risks to financial stability. Here, the practical concern is that mounting arrears can put pressure on lenders at the same time that businesses need continued access to credit.

Half a million closed businesses still carry loans

KCD counted 3.634 million business sites with sole proprietor loans. Of those, 505,000, or 13.9%, were already closed, roughly one in seven. A year earlier, the corresponding figures were 494,000 and 13.6%.

The increase of 11,000 represents about 2.2% growth in the number of closed businesses still holding loans. Owners who have stopped trading remain responsible for debt that must be paid from other income, assets or an agreed repayment arrangement.

Closed businesses had an average outstanding loan balance of 65.63 million won, up from 64.80 million won in the second quarter. Their average overdue amount rose from 7.89 million won to 8.11 million won.

The closure share among borrowers outside banks, at 17.3%, was about 2.3 times the 7.5% share among bank borrowers. Both the closure figures and the distribution of arrears place the heaviest pressure in the same part of the lending market.

Profits fell faster than sales

Small businesses reduced average quarterly spending by 3.20% to 36.41 million won. Revenue fell more quickly, leaving average profit at 10.20 million won, down 8.30%. The profit margin, the share of sales left after the measured expenses, fell 0.94 percentage points to 21.9%.

Put simply, the average business kept about 21.9 won in measured profit for every 100 won of sales. When revenue falls faster than spending, the amount left over shrinks more sharply than either figure alone suggests.

The change followed annual sales increases of 1.01% in the first quarter and 3.96% in the second. Third quarter sales returned to an annual decline for the first time in five quarters, while profit margins had fallen from a year earlier for three consecutive quarters.

Compared with the second quarter, revenue fell 5.44% and profit fell 13.94%. The annual comparison also reflects a stronger period a year earlier: sales had risen 2.79% from the preceding quarter in the third quarter of 2025, when public livelihood recovery consumption coupons supported spending. Comparing current sales with that stronger period makes the annual decline larger.

Restaurants, shops and leisure businesses lose sales

Food businesses serving everyday meals recorded declines across several categories. Fast food sales fell 5.7% from a year earlier, snack restaurants fell 5.1%, Japanese restaurants fell 5.0% and Korean restaurants fell 4.6%.

General retail, including supermarkets and convenience stores, recorded a 3.8% decline. Specialty retail, including furniture shops, stationery stores and opticians, fell 4.1%. The weakness extended across businesses that serve routine household needs.

Arts, sports and recreation services recorded the largest sector decline, at 11.2%. That group includes karaoke rooms, PC cafes and sports facilities. Its sales decline was more than twice the 4.36% fall in average sales across the small business sample.

Kang Ye-won, KCD's head of data, connected weaker trading with growing repayment difficulties and called for measures aimed directly at restoring sales:

As this signals that weak sales are spreading into weakened repayment capacity, swift measures are needed that can directly support a recovery in small merchants' sales.

Why closing the shop may not provide an exit

The Ministry of SMEs and Startups' 2026 survey of closed small businesses found that 68.5% of respondents had debt when they decided to close. Among those with debt, the average balance was 85.31 million won.

Loan repayment was the biggest difficulty during closure for 45.5% of respondents. After closure, 22.1% said debt was making it difficult to take part in economic activity. The findings connect business failure with the challenge of earning a living afterward.

Several support routes exist, but eligibility depends on when the loan was taken out and whether repayments are current. Banks began the Small Business 119Plus programme in April 2025 to help borrowers at risk of falling behind through lower interest rates or longer repayment periods.

A refinancing programme for owners closing their businesses can convert existing business loans into instalment plans lasting up to 30 years. It covers loans being repaid normally and is limited to borrowing taken out by the end of June 2025. Owners with later loans need another route.

The New Start Fund serves borrowers facing financial distress through debt purchases or negotiations with participating financial institutions. Depending on the route, support can involve a reduction in principal, lower interest rates or a longer repayment schedule. Owners with debts at several institutions must check which loans qualify under each programme.

Debt relief can take months to arrange

The New Start Fund had received cumulative applications from 221,160 people covering 34.9066 trillion won in debt by the end of September 2026. The scale shows how many borrowers were seeking changes to obligations they were struggling to manage.

Agreement from lenders remained a major obstacle in the negotiation route. At the end of August, financial institutions had not agreed to 67.9% of requests for interest reductions or repayment extensions, measured by account. The figure was 84.2% for card and capital companies and 65.8% for banks.

Waiting times also varied sharply. Agreements took an average of 266.3 days when the Korea Asset Management Corporation (KAMCO) directly purchased distressed debt for principal reduction. When the financial institution retained the debt and adjusted interest or repayment terms, the average was 76.6 days.

The direct purchase route therefore took about 3.5 times as long, based on those averages. For an owner trying to restart work after closure, several months of uncertainty about repayment terms can complicate decisions about household spending and new employment.

Oh Se-hee, a Democratic Party lawmaker, introduced a small business welfare bill in September 2026 covering early identification of financial trouble, debt adjustment, credit recovery and support after closure. Its passage and implementation dates have not been announced.

What the proposals would change for borrowers

Lee Min-je of KCS called for lenders to examine current sales and cash flow when judging repayment capacity. Cash flow is the money entering and leaving a business, and it helps show whether an owner has funds available when a payment falls due.

Lee argued that assessments centred on past credit history struggle to separate a temporary shortage of cash from a business whose finances are no longer workable. He called for continued funding to owners whose repayment capacity can be demonstrated through business data, and larger lending limits for growing businesses.

KCS estimated that credit assessment models using tax records, sales and purchasing histories, labour costs and other business information could have supported up to 30 trillion won in additional lending annually. That amount is the company's estimate of lending capacity under a different assessment approach; actual lending would depend on decisions by financial institutions.

Lee Jung-hee, an economics professor at Chung-Ang University, called for support that reduces the burden of labour, raw materials and financing costs. Together, the proposals address different parts of the problem: access to money for businesses able to repay, operating costs that squeeze profit, and debt arrangements for owners who have stopped trading.

How the figures were assembled

KCD analysed a sample of businesses using Cashnote, its management service for sole proprietors, to measure sales and spending. The analysis drew on business data linked through the Credit Finance Association and Hometax, South Korea's online tax service.

The lending analysis used sole proprietor loan data from the Korea Credit Information Service. The Ministry of SMEs and Startups' closure survey examined a different group, people who had closed businesses, so its average debt figure describes a different population from KCD's average loan balance for closed sites.

Read together, the findings trace a concrete sequence of financial pressure: weaker sales leave less profit, less profit makes scheduled repayments harder, and closure leaves many owners seeking a way to repay debt without revenue from the business.

Key Points

• Overdue sole proprietor loans reached 16.4 trillion won in the third quarter of 2026, up 21.5% from a year earlier.
• Lenders outside banks held 41% of outstanding loans but about 83% of overdue amounts.
• Some 505,000 businesses carrying loans were closed, representing 13.9% of business sites with borrowing.
• Average quarterly sales fell 4.36% to 46.61 million won, while profit fell 8.30% to 10.20 million won.
• Closure refinancing depends on loan dates and repayment status, while New Start Fund agreements took an average of 76.6 or 266.3 days depending on the route.
• Proposals focus on restoring sales, reducing costs, using current business data in lending decisions and improving support after closure.