Insurance payouts for small business closures in South Korea have reached a historic high of 1.3 trillion won in 2024. (Image courtesy of Yonhap)
SEOUL, Dec. 26 (Korea Bizwire) — Insurance payouts for small business closures in South Korea have reached a historic high of 1.3 trillion won in 2024, reflecting the deepening impact of the economic slowdown, according to the Korea Federation of SMEs.
The federation reported on December 25 that payments under the “Yellow Umbrella” business closure insurance program reached 1.30 trillion won through November, marking a 10.1% increase from the previous year’s 1.18 trillion won.
While the number of business closures slightly decreased to 102,940 from last year’s 103,254, the financial strain on small businesses has intensified.
The situation is further highlighted by a dramatic surge in credit guarantee foundation payments. According to data obtained by Democratic Party Representative Oh Se-hee, these payments, which cover bank loans for small business owners, jumped from 507.6 billion won in 2022 to 1.71 trillion won in 2023, and reached 2.06 trillion won by October 2024.
Small business owners report mounting operational challenges amid persistent economic stagnation, rising labor costs, and increased material expenses.
One former café owner in Gangnam, who recently closed after two years of operation, shared their experience: “With declining summer sales and fewer customers as the weather turned cold, continuing through winter seemed impossible. While not operating at a loss, there was nothing left after paying part-time workers.”
National Tax Service statistics reveal that 986,487 business operators filed for closure in 2023, the highest number since record-keeping began in 2006. “Small business owners have limited resilience during market downturns,” explained Cha Nam-soo, policy promotion director at the Korea Federation of Micro Enterprise.
“Years of minimum wage increases, coupled with high inflation and weakening domestic consumption, have created a perfect storm of rising costs and declining income.”
The challenges extend to small and medium-sized enterprises (SMEs) as well. A recent survey by the Korea Federation of SMEs found that 47.2% of SMEs reported worse financial conditions compared to last year, up 15.5 percentage points from the previous year’s survey. Looking ahead to 2025, 59.7% of businesses expect similar conditions to continue, while 23.1% anticipate further deterioration.
SMEs are particularly concerned about high exchange rates and potential regulatory tightening under the second Trump administration. Unlike larger corporations, smaller businesses often lack sophisticated currency risk management capabilities. One clothing importer handling 50 billion won in annual imports described how exchange rate fluctuations alone caused 2-3 billion won in losses this year.
The Korea Trade Association’s Export Business Survey Index (EBSI) for the first quarter of 2025 has fallen below the benchmark 100 to 96.1, indicating growing pessimism about export prospects.
The cosmetics industry, despite its recent success with K-beauty products, is particularly anxious about potential tariff increases under the upcoming Trump administration, even as U.S. exports grew 49.6% to $990 million through September 2024.
Industry observers note that the continued strength of the U.S. dollar will particularly impact SMEs that import raw materials for domestic supply chains, potentially deepening their financial struggles in the coming year.
M. H. Lee (mhlee@koreabizwire.com)
