The rise in loans and fixed costs has put many self-employed businesses at risk of closure, with 40% considering shutting down within the next three years.
Economic Outlook for Self-Employed Sales
Despite the lifting of COVID-19 quarantine measures, sales for domestic self-employed individuals have decreased in the first half of this year. Additionally, half of self-employed individuals predict a further decline in business performance for the second half of the year.
Based on the “2023 Self-Employed First and Second Half Performance Survey” conducted by the Federation of Korean Industries, 63.4% of self-employed individuals reported a decrease in sales compared to the same period last year. Furthermore, 63.8% mentioned a decrease in net profit. On average, sales dropped by 9.8% and net profit by 9.9% compared to last year’s figures. In a survey conducted in August last year, the Federation of Korean Industries found that sales performance in the first half of the year had decreased by an average of 13.3% compared to the same period last year.
This research, commissioned by Mono Research, a market research organization, surveyed 500 self-employed individuals in industries such as restaurants, accommodation, wholesale and retail, and other services. Many expressed concerns about the decline in business performance.
The most significant cost increases for management this year were in raw materials and material costs (20.9%), labor costs (20.0%), electricity and gas public charges (18.2%), and rent fees (14.2%).
The average loan amount for the self-employed surveyed was approximately 83 million won. The majority (75.4%) stated that their loan amount was less than 100 million won, while about 13.4% had borrowed more than 150 million won. Compared to the beginning of the year, 51.2% reported an increase in loan amount, while 48.8% experienced a decrease.
The increase in loans was primarily to cover fixed costs such as rent, labor, and utility bills (46.9%), repayments of interest on existing loans (25.0%), and expenses for raw materials and materials (15.2%). Most loans were used for maintenance rather than expansion or investment in existing businesses. The decrease in loans was mainly due to concerns about future interest rate increases, reduced existing loans (40.6%), repayment of existing loans due to improved sales and profitability (20.9%), and loan limits preventing additional borrowing (17.2%).
Regarding the economic recovery period, 84.4% of self-employed individuals predicted that it would occur after 2024. Only 12.8% believed that the economy would revive in the second half of this year.
Furthermore, around 40% of the self-employed individuals surveyed stated that they were considering closing their businesses within the next three years. The main reasons for closure were the continued decline in business performance (29.4%), worsening financial situation and loan repayment burden (16.7%), and uncertain prospects for economic recovery (14.2%). Even those who did not consider closing their businesses had mainly negative reasons, such as a lack of alternatives (22.3%).
Yellow umbrella business closing deductions, which are paid as severance when self-employed or small business owners close their businesses, reached 554.9 billion won, indicating a 66.4% increase compared to the same period last year. Despite the lifting of quarantine measures, the number of business closures has continued to rise alongside declining business performance.
When asked about the challenges faced this year, rising rent and various fees and taxes (21.1%), the cost of purchasing raw materials due to rising import prices (17.2%), and the burden of loan repayments due to high interest rates (16.7%) were mentioned as significant difficulties. Government support policies for the self-employed, such as limiting or reducing utility rates, expanding financial support through low-interest loans, and promoting consumption to boost consumer sentiment, were seen as necessary.
Kwang-ho Choo, head of the FKI’s Economy and Industry Headquarters, commented, “Given the gloomy economic outlook and burdens such as loans and rent, it is understandable that self-employed individuals are considering closing their businesses due to a lack of alternatives.”
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[신아일보] Reporter Jang Min-je
jangstag@shinailbo.co.kr
Copyright © Shina Ilbo Unauthorized reproduction and redistribution prohibited
Due to the increase in loans, fixed costs… 40% are considering going out of business within 3 years
Economic outlook for self-employed sales.[이미지=전경련]
In the first half of this year, domestic self-employed people showed a drop in sales despite the lifting of COVID-19 quarantine regulations. One in two self-employed people predicted that business performance would worsen in the second half of this year.
According to the Federation of Korean Industries on the 2nd, as a result of the ‘2023 Self-Employed first and second half performance survey’, 63.4% of self-employed people responded that their sales in the first half of this year decreased. compared to the same period last year. A further 63.8% answered that their net profit had fallen. The average decrease was -9.8% in sales and -9.9% in net profit compared to the same period last year. A survey conducted by the Federation of Korean Industries in August last year found that sales performance in the first half of the year fell by an average of 13.3% compared to the same period last year.
This research was commissioned by Mono Research, a market research organisation, and was carried out on 500 self-employed people in the restaurants, accommodation, wholesale and retail, and other services industries. A high proportion of people were concerned about the decline.
The most burdensome management cost increase this year was △ raw materials and material cost (20.9%) △ labor cost (20.0%) △ electricity and gas, etc. public charges (18.2%) △ rent fee (14.2%).
The average loan amount of the self-employed surveyed was around 83 million won. Most of the answers (75.4%) said the loan amount was less than 100 million won, and about 13.4% said they borrowed more than 150 million won. Compared to the beginning of this year, 51.2% responded that the amount of the loan had increased, while 48.8% had decreased.
The reason for the increase in loans is △ fixed cost expenses such as rent, labour, and utility bills (46.9%) △ repayment of interest on existing loans (25.0%) △ expenditure on raw materials and materials (15.2%) rather than additional loans for expansion or investment in existing businesses There were many loans for maintenance. As for the reasons for the reduction in loans, △reduced existing loans (40.6%) due to concerns about future interest rate increases, △repayment of existing loans due to better sales and profitability (20.9%), and △impossibility of additional loans due to loan limit problems (17.2%).
Regarding the economic recovery period, 84.4% of self-employed people predicted that it would be after 2024, the next year. Only 12.8% said the economy would revive in the second half of this year.
In addition, around 40% of the self-employed responded that they were considering closing their businesses within the next three years. The main reasons for considering closure were △continued decline in business performance (29.4%) △deteriorating financial situation and loan repayment burden (16.7%) △unclear prospects for economic recovery (14.2%). Even those who responded that they were not considering closing their business had only 25.5% positive reasons. On the other hand, negative reasons such as no particular alternative (22.3%) reached 53.1%.
In fact, 554.9 billion earned was paid to the yellow umbrella business closing deduction, which is paid as severance pay when self-employed or small business owners close their businesses. This is an increase of 66.4% compared to the same period last year. Contrary to expectations that the economy would improve due to the lifting of quarantine measures, it appears that the number of business closures has increased as business performance continues to decline.
For questions asking about business difficulties this year, △ Rising rent and the burden of various fees and taxes (21.1%), △ The cost of purchasing raw materials due to rising import prices (17.2%), △ The duration of high interest rates, the burden of repayment of loans (16.7%) who answered in order. The government’s support policies for the self-employed include △Limiting or reducing public utility rates such as electricity and gas rates (19.0%) △Expanding financial support such as low interest loans (18.5%) △Support to promote consumption to recover consumer sentiment (16.6 responded %) etc. that this is necessary.
Kwang-ho Choo, head of the FKI’s Economy and Industry Headquarters, said, “It is difficult for self-employed people to consider closing their businesses because there is no alternative amid the gloomy economic outlook or because of burdens such as loans. and rent.” There is,” he noted.
jangstag@shinailbo.co.kr
Copyright © Shina Ilbo Unauthorized reproduction and redistribution prohibited
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