A restaurant owner surnamed Jeong said his business in Myeongdong, Seoul, has no hope of recovery, with his debt snowballing.
“I thought August was the worst amid the second wave of the COVID-19 spread, but that is likely to be overshadowed by how I am doing over the next couple of weeks.”
He, like many of his peers in the same in-person services business, can no longer see the point of keeping his business open, since the only certainty is that there will be no customers for the foreseeable future.
“News reports are all about new infections soaring and people dying. Who would want to risk their lives to go eat out?”
The COVID-19 pandemic is tanking small- and medium-sized enterprises (SMEs), a repeated predicament set to take a drastic turn for the worse given social distancing regulations are likely to be raised to Level 3 with new infections topping 1,000 daily for the past few days.
Experts say one-off emergency relief of only a couple of thousands of won will do little to help their businesses stay afloat, stressing that extending a steady line of financing would be a far more effective option for the group of low-income earners that take the first hit from the pandemic.
Data from Korea Credit Data, a financial market services provider, submitted to Rep. Lee Dong-ju of the Democratic Party of Korea (DKP), showed sales at SMES began a downtrend in mid-November, quickly negating a months-long uptrend that barely allowed them to recover from the months leading up to October when the second wave of the virus spread began to subside.
Of the hardest hit industries, entertainment facilities saw their sales plunge to 24 percent of their normal income in the first week of December year-on-year, only about a month after their sales figure recovered to 70 percent, following a woeful decline to 7 percent in the first week of October during the Chuseok holiday, year-on-year.
Singing rooms, or Korean-style karaoke rooms, reported their sales slumping to 23 percent in the first week of December year-on-year, a figure that could tank further to 5 percent logged in early September.
Their dramatic sales drop was mostly due to the government’s ban of large gatherings in small indoor facilities prone to mass infection due to poor ventilation.
The Level 3 social distancing necessitated to limit further spread will draw similar shutdowns and bans on late-night operations, affecting about 2.02 million facilities, up from 1.57 million amid the Level 2.5 distancing.
“A far greater number of SMEs will be pushed to the brink of collapse, with their families lives taking a major hit in the process,” Yonsei University economist Sung Tae-yoon said.
“The financial authorities need to extend loans and delay interest payments until after the pandemic subsides. This is better than giving cash relief that will hardly be enough for them to keep their businesses open.”
Data submitted to Rep. Jang Hye-young of the minor opposition Justice Party from Bank of Korea showed that the outstanding loans taken out by the self-employed was 755.1 trillion won ($686 billion) as of June, up 70.2 trillion won from 2019.
This already exceeded half of the annual increase of about 60 trillion won in 2019, with the number of borrowers also jumping 382,000 to 2.2 million in the first six months of 2020, an all-time high increase.
“The figure means many SMEs are barely getting by. This ticking time bomb will go off once the virus spread dies down, at which point the country’s fiscal soundness will have become far shakier,” Sung said.
