Owners of small businesses in South Korea typically operate Owners of small businesses in South Korea typically operate for an average of 6 years and 6 months before closing shop for an average of 6 years and 6 months before closing shop. (Image courtesy of Yonhap)
SEOUL, March 20 (Korea Bizwire) – Owners of small businesses in South Korea typically operate for an average of 6 years and 6 months before closing shop, accumulating approximately 100 million won in debt during their business lifecycle, according to findings released today by the Korea Federation of SMEs.
The data comes from a survey of 820 small business owners who received closure payments from the Yellow Umbrella mutual aid program since 2021. The study, conducted between January 21 and February 18, found that nearly 40% of these businesses shut down within just three years of opening.
When asked why they closed their businesses, 86.7% of respondents cited deteriorating profitability and declining sales as the primary factors. Other common reasons included personal circumstances such as aptitude or family matters (28.7%), preparation for new business ventures (26%), and unavoidable circumstances such as expiring leases or administrative penalties (21.8%).
The main causes of declining profitability included decreasing customer numbers due to weak domestic consumption, rising costs of raw materials due to inflation and increased labor costs, and higher fixed expenses such as rent.
The accommodation and restaurant sector reported particularly high burden from online platform fees and advertising costs (35.6% compared to the average of 16.3%), indicating significant financial pressure from digital marketplace expenses.
When they decided to close their businesses, owners carried an average debt of 102.36 million won. Manufacturing businesses had considerably higher debt levels at 144.41 million won, approximately 1.5 times higher than the accommodation and restaurant sector (90.46 million won).
The actual process of closing a business cost owners an average of 21.88 million won, including demolition costs (5.18 million won), restoration expenses (3.79 million won), employee severance pay (5.63 million won), and taxes (4.2 million won). Manufacturing businesses faced closure costs approximately three times higher than restaurants and accommodations businesses.
The survey identified major challenges during the closure process, with securing basic income needs ranking highest (31.1%), followed by recovering key money and transferring business ownership (24.3%), and loan repayment (22.9%).
About 71.1% of respondents said the Yellow Umbrella mutual aid payments were helpful during closure, with 58.9% using these funds for living expenses. However, 78.2% reported not utilizing government support programs such as the Hope Return Package or New Start Funds.
Respondents identified several policy priorities that would better support struggling business owners. These included loan payment extensions and interest reductions, financial assistance for closure costs, career transition support, and expanding self-employment insurance and Yellow Umbrella mutual aid coverage.
M. H. Lee (mhlee@koreabizwire.com)
