Seven in 10 small business closures driven by poor sales; average debt tops 85 million won

The Ministry of SMEs and Startups on Tuesday released a quantitative and qualitative statistical analysis based on National Tax Service closure data and a survey of small business owners who had shut down operations. [Ministry of SMEs and Startups]

70.9% of closed small businesses cite poor sales, falling profitability

68.5% carried debt at time of closure; those 60 and older averaged 98.97 million won

After closing, 41% seek employment; 26% attempt to restart a business

Seven in 10 small business owners who shut down cited poor sales as the main reason for closing, a new government survey shows. Falling revenue was the leading driver of closures, with the most common tipping point being a sales drop of around 50 percent. Average debt among owners at the time of closure exceeded 85 million won ($55,300), and 41 percent chose to seek employment rather than start a new business.

The Ministry of SMEs and Startups on Tuesday released a quantitative and qualitative statistical analysis based on National Tax Service closure data and a survey of small business owners who had shut down. The number of businesses that closed in 2025, according to the National Tax Service's national tax statistics portal, stood at 975,681 — down 32,601 from 1,008,282 the previous year. The closure rate also fell 0.40 percentage points over the same period, from 9.04 percent to 8.64 percent.

However, the six major industries where small businesses are concentrated — manufacturing, wholesale, retail, food service, accommodation and services — recorded 751,264 closures last year, with a closure rate of 11.08 percent, 2.44 percentage points above the overall rate. Even excluding real estate sales and leasing, the closure rate stood at 10.14 percent, above the national average.

When asked why they decided to close, 70.9 percent of respondents cited deteriorating profitability or poor sales. Personal or family circumstances accounted for 13.7 percent, while retirement due to health or old age accounted for 12.1 percent. The survey covered 1,500 small business owners who had closed within the past year and had participated in government support programs such as the Hope Return Package, the Yellow Umbrella mutual aid fund or regional credit guarantee schemes.

Among those who cited poor sales as the cause, 62.5 percent pointed to a decline in customers due to weak domestic demand. Rising raw material costs were cited by 29.4 percent, higher labor costs by 28.8 percent, and rising fixed costs such as rent and maintenance fees by 24.9 percent. Shrinking customer traffic and rising costs together pushed owners to close.

Asked how far sales had fallen before they decided to close, 64.4 percent said they made the decision when revenue had dropped 40 percent or more from normal levels. A decline of 40 to 60 percent was the most common range, cited by 39.1 percent of respondents. Drops of 60 to 80 percent were reported by 13.1 percent, and declines of more than 80 percent by 12.2 percent.

At the time they decided to close, 68.5 percent of respondents said they were carrying debt. Among those with debt, the average amount owed was 85.31 million won. Loans from primary financial institutions averaged the most at 34.83 million won, followed by loans backed by regional credit guarantee foundations at 25.85 million won, secondary financial institution loans at 12.93 million won, and government policy funds at 6.82 million won. Debt burdens rose with age: those in their 20s or younger averaged 35.67 million won, those in their 30s 72.95 million won, those in their 40s 76.73 million won, those in their 50s 84.24 million won, and those 60 and older 98.97 million won.

The financial burden of closing was also substantial. Among those who incurred costs during the closure process, the average came to 12.86 million won. Store clearance costs such as demolition and restoration were the largest single item at 5.59 million won, followed by unpaid raw material bills at 2.21 million won, employee severance pay at 2.05 million won, unpaid or remaining rent at 1.13 million won, and overdue taxes and public charges at 1.06 million won.

Repaying loans was the biggest difficulty during the closure process, cited by 45.5 percent of respondents in a multiple-answer question. Deciding when to close came second at 37.3 percent, followed by store clearance costs at 32.0 percent and recovering deposits and premium payments at 30.7 percent. The average premium paid when opening a business was 13.37 million won, but owners recovered only an average of 4.22 million won when closing — a recovery rate of just 31.5 percent.

From the decision to close to the actual cancellation of business registration, the process took an average of 7.7 months. The largest share of respondents, 38.4 percent, completed the process in under three months, but 25.9 percent said it took more than a year. The main reasons for the delay included searching for a buyer or transferee (30.6 percent), understanding closure procedures (26.1 percent), waiting out the remaining lease term (20.3 percent), and repaying loans (18.8 percent).

After closing, more owners sought employment than attempted to restart a business. When asked about their current status, 41.4 percent said they were employed or looking for work. Only 26.9 percent said they had started or were preparing to start a new business, while 29.3 percent said they had given up on economic activity or were taking a break. The findings suggest that once a small business owner closes up shop, the pull toward stable wage employment outweighs the desire to try again.

Meanwhile, the Ministry of SMEs and Startups said it plans to jointly research post-closure employment and re-entry statistics with the Ministry of Statistics and publish the findings in September. Starting in 2027, the ministry plans to consolidate National Tax Service closure data, survey findings and re-entry pathway statistics into a unified annual business closure report, to be released each year in early July.

hong@heraldcorp.com