Bank loans are rising steeply as the baby-boomer generation born between 1955 and 1963 begin to retire and start their own small businesses.
According to financial industry sources on Tuesday, the total amount of outstanding loans to start-ups by Kookmin, Shinhan, Woori, Hana and Nonghyup banks stands at W109.3 trillion (US$1=W1,144) as of the end of June, up W5.9 trillion (5.7 percent) from the end of last year. Over that period, 84 percent of all loans were given to startups.
According to a study by the Bank of Korea, startup owners make an average of W50.5 million a year, while the principal on their loans amounts to W10.82 million. That means that W21 out of every W100 they make goes into paying off their debts.
Last year, start-ups only had to pay only W16 for every W100 they made to repay their debts. In other words, the amount of debt held by start-ups has risen 19 percent over the past year, which has led to an increase in defaults.