Q2 sales up 4.53% but expenses rose 5.83%

Sole proprietor overdue loans reach 15.2 trillion won for second consecutive quarter of growth

Non-bank delinquency share at 17.5%, more than double bank sector rate

Gyeongdong Market in Dongdaemun-gu, Seoul, sits nearly empty. [Herald DB]
Gyeongdong Market in Dongdaemun-gu, Seoul, sits nearly empty. [Herald DB]

Small business revenues grew from a year earlier, but expenses rose even faster, steadily eroding actual profits, according to a new analysis. Overdue loans held by sole proprietors also increased for a second consecutive quarter.

According to Korea Credit Data's "Q2 2026 Small Business Trend Report" released Tuesday, average sales per business reached 47.11 million won ($34,800) in the second quarter, up 4.53 percent from the same period last year. Average expenses, however, rose 5.83 percent to 35.22 million won, outpacing the sales gain.

Average profit — sales minus expenses — came to 11.89 million won, just 0.85 percent higher than a year earlier. The profit margin fell to 25.2 percent, down 0.92 percentage points from the same quarter last year. That followed a 1.09-percentage-point year-on-year decline in the first quarter, marking two consecutive quarters of margin contraction.

"Compared with the same quarter a year ago, sales increased, but expenses grew faster, pushing the profit margin down for two straight quarters," said Kang Ye-won, head of data at Korea Credit Data. "The trend of neighborhood small businesses failing to turn a profit is becoming entrenched."

Regional disparities were also pronounced. Of the country's 16 cities and provinces, eight recorded year-on-year declines in second-quarter profit margins. Jeju posted the steepest drop at 2.13 percentage points, followed by Sejong at minus 1.57 percentage points, Ulsan at minus 1.24 percentage points, South Gyeongsang Province at minus 1.23 percentage points and Seoul at minus 0.77 percentage points. South Chungcheong Province, by contrast, improved by 2.38 percentage points, with North Chungcheong Province up 1.78 percentage points and Incheon up 1.63 percentage points. The widest regional swing reached 4.51 percentage points.

By sector, fast food sales rose 13.4 percent from the previous quarter, with tteokbokki and snack restaurants up 12.1 percent and cafes up 10.8 percent. In services, professional, scientific and technology services grew 24.0 percent, while accommodation and travel services rose 22.5 percent. Accommodation and travel services were down 4.7 percent compared with the same period last year, however.

A commercial building in Seoul displays vacancy signs. [Yonhap]
A commercial building in Seoul displays vacancy signs. [Yonhap]

Loan burdens also persisted. The total outstanding loan balance for domestic sole proprietors reached 735.8 trillion won in the second quarter, up 0.5 percent from the previous quarter. Bank-sector loans accounted for 433.6 trillion won and non-bank loans for 302.2 trillion won. Non-bank lending grew 1.1 percent quarter on quarter, well above the 0.1 percent increase in the bank sector.

Overdue loan balances rose 4.3 percent to 15.2 trillion won from 14.6 trillion won the previous quarter. After a brief decline in the fourth quarter of last year, overdue balances jumped 12.6 percent in the first quarter of this year and continued rising in the second quarter. Of the total, 2.7 trillion won was in the bank sector and 12.5 trillion won in the non-bank sector.

Delinquency as a share of outstanding loans was relatively high at savings banks, at 5.7 percent, and mutual finance institutions, at 3.5 percent. Of the 3.625 million businesses holding sole-proprietor loans, 509,000 — or 14.0 percent — had already closed. The closure rate among businesses with non-bank loans stood at 17.5 percent, more than double the 7.8 percent rate for those with bank loans.

"With profit margins falling year on year in eight of 16 cities and provinces, and overdue balances rising for two consecutive quarters, we cannot afford to miss the golden window to quickly revive neighborhood commercial districts," Kang said.

Foreign card spending at small businesses surged overall but showed signs of concentration in a small number of stores. Nationwide, foreign card sales grew nearly tenfold over the past three years, while Busan and Jeju saw increases of 16.9 times and 22.1 times, respectively. Over the past year, foreign card sales grew 60.4 percent in Busan and 54.4 percent in Jeju.

In Busan, however, the top 1 percent of stores accounted for 52.9 percent of all foreign card sales, while in Jeju the figure reached 42.2 percent. Average monthly foreign card sales per business came to 459,000 won in Jeju and 301,000 won in Busan.

Meanwhile, guarantee defaults among small businesses and small and medium-sized enterprises are also growing. From 2024 through July of this year, guarantee accident amounts across 17 regional credit guarantee foundations nationwide reached around 6 trillion won, with 1.14 trillion won in subrogation payments made so far this year alone. The average subrogation payment per incident rose to 16.5 million won, up from 15.6 million won last year.


rim@heraldcorp.com