3,161 companies closed within a year of receiving or renewing Korea Credit Guarantee Fund guarantees in 2025; 31 firms filed for rehabilitation within a month of guarantee issuance; subrogation payments by the fund approach 500 billion won annually; default amounts and subrogation totals hit four-year highs; People Power Party lawmaker Park Sung-hoon calls for stronger screening and risk-monitoring systems

A sign believed to have been written by a business owner announcing a closure. Research has shown that higher minimum wages raise the closure rate among self-employed workers already operating at the margins. [Yonhap]
A sign believed to have been written by a business owner announcing a closure. Research has shown that higher minimum wages raise the closure rate among self-employed workers already operating at the margins. [Yonhap]

More than 3,000 companies that received government-backed credit guarantees shut down within a year of obtaining them in 2025, with the Korea Credit Guarantee Fund paying out more than 500 billion won ($369 million) in subrogation payments on behalf of those failed businesses.

The figures come even as South Korea's economic growth forecasts have been revised upward on the back of a semiconductor boom, underscoring that large swaths of the domestic economy remain mired in a downturn. Analysts say the government needs to tighten its oversight systems to catch signs of distress early, given that public funds back these guarantees.

Data submitted to People Power Party lawmaker Park Sung-hoon of the National Assembly's Political Affairs Committee by the Korea Credit Guarantee Fund showed that 3,161 companies that received new guarantees or had existing ones renewed in 2025 closed within a year. The total guaranteed amount involved came to 623.8 billion won.

Of those, 2,829 had their guarantees renewed before shutting down within a year. Broken down by timing, 337 closed within three months, 665 within four to six months, and 1,827 within seven to 12 months. A total of 183,437 companies received renewed guarantees during the year.

Among firms that received new guarantees, 332 out of 30,454 closed within a year — 46 within three months, 77 within four to six months, and 209 within seven to 12 months.

The trend has continued this year. As of the end of August, 303 companies that had their guarantees renewed and 35 that received new guarantees had already shut down.

Companies filing for court rehabilitation within 30 days of receiving or renewing a guarantee have also been a persistent problem. The number stood at 22 cases (6.7 billion won) in 2022, rose to 50 cases (11.8 billion won) in 2023, fell to 38 cases (8.8 billion won) in 2024, and came to 31 cases (10.8 billion won) last year.

The overall number of companies closing within a year of receiving a guarantee has been on a gradual downward trend. After rising from 3,587 in 2022 to 3,791 in 2023, the figure fell to 3,627 in 2024.

Subrogation payments made by the fund on behalf of these companies have nonetheless remained in the 500 billion won range. Payments for companies that closed within a year of a guarantee renewal came to 558.7 billion won in 2023, 573.1 billion won in 2024, and 533.8 billion won last year.

As of the end of August this year, the figure stood at 47.4 billion won. Given that the average time between a guarantee renewal and a subrogation payment exceeds 300 days, however, the total is expected to rise sharply in the fourth quarter.

Analysts say the recent decline is largely an optical illusion created by government support measures for struggling small businesses, such as interest repayment deferrals, and that underlying financial risks remain. The fund's default rate among guaranteed companies surged from 2 percent in 2022 to 3.6 percent last year. The total default amount reached 2.3 trillion won, the highest in four years. The subrogation rate for all guaranteed companies in 2025 stood at 3.8 percent, with total subrogation payments of 2.43 trillion won — also a four-year high.

The subrogation rate for companies with renewed guarantees was particularly stark, climbing to 4.6 percent last year from 0.6 percent in 2022 — a rise of 4 percentage points.

The fund's guarantee recipients are mostly small and medium-sized enterprises and small business owners. The high number of short-lived closures among guaranteed companies signals that the so-called "K-polarization" — the widening gap between export-driven sectors such as semiconductors and domestically oriented industries — is deepening.

According to the Bank of Korea, the delinquency rate among financially vulnerable self-employed borrowers — defined as those with multiple debts and either low income or poor credit — rose from 12.2 percent at the end of 2024 to 12.7 percent in the first quarter of this year. The delinquency rate for vulnerable small and medium-sized enterprise borrowers also edged up from 2.8 percent to 2.9 percent over the same period.

Concerns are growing that the Bank of Korea's benchmark interest rate increases, combined with a recent rise in long-term US Treasury yields, could further strain the finances of small businesses and self-employed operators. In its June financial stability report, the Bank of Korea said it expected "financially vulnerable small and medium-sized enterprises and companies in domestically oriented sectors to be significantly affected by rising interest rates."

Calls are also mounting for tighter management of the policy guarantee system, given that public funds are at stake. Renewed guarantees have long been criticized for being subject to looser screening than new ones, since lenders tend to rely on existing transaction histories rather than conducting fresh assessments.

"If guarantees were extended to companies that shut down within months of renewal — or that were on the verge of filing for rehabilitation or bankruptcy — we need to ask whether the screening process was working properly," Park said. "We must strengthen the screening and management systems that detect early warning signs, so that guarantees meant to keep businesses alive do not end up absorbing bad debt after the fact."


hyuk@heraldcorp.com