Reform of Policy Finance for Startups and Small Businesses... Lowering Guarantee Thresholds and Providing 12 Trillion Won in Support

On the 21st, the Financial Services Commission held the 14th Policy Finance Support Council and reviewed support measures for startups, small businesses, and SMEs, as well as the current status of policy finance supply this year. Discussions were held on ways to overhaul the policy finance support system to match the growth stages and management conditions of companies, such as increasing financial accessibility for early-stage startups, expanding the scale of support for small businesses, and easing the debt burden of SMEs.

The Korea Credit Guarantee Fund (Shinbo) and Industrial Bank of Korea have launched the 'Startup Build-Up Program' to discover early-stage startups in new growth engine sectors and support their stepwise growth. This program is designed to support early-stage companies that possess technological capabilities and growth potential but have struggled to receive guarantees from existing policy finance institutions due to a lack of sales or transaction history.

The target of the program is early-stage startups within three years of founding. The guarantee entry requirements have been relaxed compared to 'Easy-Start', the existing early-stage startup support program of the Korea Credit Guarantee Fund, expanding the target audience based on the representative's credit rating and growth potential assessment. While the existing Easy-Start required a representative's credit rating (CBR) of grade 3 or higher and a growth potential assessment score of 50 or higher, the Build-Up Program allows applications if the CBR is grade 3 or higher with a score of 45 or higher, or grade 4 with a score of 50 or higher.

Support consists of three stages: 'Entry-Growth-Settlement'. In the first year, a maximum of 100 million won is guaranteed depending on the company's growth potential, and after one year, the creditworthiness and growth potential are re-evaluated to allow the total guarantee limit to be expanded up to 200 million won in the second year. The first-year support limit is a maximum of 100 million won for companies with a CBR of grade 4 and a growth potential assessment score of 60 or higher, and a maximum of 50 million won for companies with a CBR of grade 3 or higher and a score of 45 or higher, or a CBR of grade 4 and a score between 50 and 60.

Financial cost burdens will also be lowered. In the first year, the Korea Credit Guarantee Fund's guarantee fee rate is fixed at 1.0%, and the Industrial Bank of Korea's loan interest rate is reduced by up to 1.2 percentage points. In the second year, the guarantee fee rate is lowered to 0.7%, and the loan interest rate is reduced by up to 1.5 percentage points. Companies that graduate from the program can receive support in connection with the Korea Credit Guarantee Fund's existing follow-up programs by growth stage.

Follow-up support has also been prepared. If a startup using the Build-Up Program utilizes follow-up programs for each growth stage, extra points will be given during screening, and promising companies will be provided with non-financial support opportunities such as consulting and Investor Relations (IR) sessions by policy finance institutions. Through this, the plan is to establish a support system that leads from initial funding to the growth and settlement of companies.

Financial authorities are also pushing for the establishment of specialized asset managers to supply large-scale, long-term funds to core technologies in future strategic technologies and national strategic industries. They plan to assign the role of linking public and private funds to stably supply the funds required for promising future fields.

Although policy finance programs targeting future strategic technologies and strategic industries are currently operating, the financial authorities judge that specialized asset managers specialized in future strategic technologies are needed to supply long-term and large-scale funds. Accordingly, they plan to establish a new supply system that links private funds to meet large-scale investment demand that is difficult to respond to with existing policy finance alone.

The establishment of the specialized asset manager will be pushed forward centered on a joint task force (TF) formed by Korea Development Bank and Korea Growth Investment Corporation. The goal is to sign shareholder agreements and complete the establishment of the legal entity within this year, and to begin actual operations during the first half of 2027.

Policy finance will expand its supply scale, centered on strategic industries. The 2026 policy finance supply plan for Korea Development Bank, Industrial Bank of Korea, Korea Credit Guarantee Fund, and Korea Technology Finance Corporation is a total of 251.9 trillion won, an increase of 4.4 trillion won from last year. Among this, 150 trillion won is planned to be supplied to five major strategic areas: advanced strategic industries and future promising industries, industrial structure advancement, fostering unicorns/ventures/SMEs/middle-market enterprises, and resolving corporate management difficulties.

The proportion of regional supply will also be increased. There is a plan to increase the target ratio of regional supply for policy finance from the existing 40% to 41.7%, supplying 100 trillion won annually to regions. The National Growth Fund also aims to supply more than 40% of its total supply to regions, and as of the end of August, the approved amount for regional projects was 7.2 trillion won, accounting for 42.5% of the total approved amount.

To ease the debt burden of SMEs, the joint and several guarantees remaining in P-CBO will also be abolished. Joint and several guarantee is a system that imposes repayment responsibility on individuals, such as representatives, if a company is unable to repay its debt. Policy finance institutions have been phasing out joint and several guarantees for SMEs since 2018, but the relevant system remained in P-CBO.

P-CBO is a method where a Special Purpose Company (SPC) acquires corporate bonds issued by individual companies and bundles them, after which institutions like the Korea Credit Guarantee Fund provide guarantees. It is a policy finance tool that supports the financing of small and medium-sized enterprises (SMEs) and middle-market enterprises that find it difficult to raise funds directly in the corporate bond market. The target of this reform is the SME P-CBO guaranteed by the Korea Credit Guarantee Fund and the Korea Technology Finance Corporation.

The exemption of joint guarantees will be applied to companies that pass a responsible management review. Newly issuing P-CBO companies must undergo a review, and companies refinancing existing P-CBOs will also undergo the same procedure to determine whether the joint guarantee can be exempted. In the responsible management review, factors such as whether the individual is an actual manager, disruption of financial order, violation of obligations, whether guaranteed loans were used for purposes other than intended, and credit ratings are verified.

Companies with remaining joint guarantees in existing P-CBOs will be handled according to the review results during the refinancing process. For companies that fail to pass the responsible management review, joint guarantees will not be exempted immediately; instead, they will be allowed to undergo a re-review after paying off 10–20% of their existing debt in installments. The plan is also to gradually reduce joint guarantees remaining in general guarantees by conducting responsible management reviews in the future.

As of the end of 2025, joint guarantees related to P-CBOs involve 3,263 companies, amounting to 4.4992 trillion won. The Korea Credit Guarantee Fund holds 3.274 trillion won, and the Korea Technology Finance Corporation holds 1.2252 trillion won, respectively. Financial authorities expect that the abolition of P-CBO joint guarantees will resolve an annual burden of approximately 1.9 trillion won.

Policy finance support for small business owners will also be expanded. The financial authorities have decided to expand and reform the 'Small Business The Dream Package', which applies lower interest rates and higher loan limits to small business owners who are faithfully repaying financial debts, from the existing 10.5 trillion won to over 12 trillion won.

The Dream Package is a program established last year through collaboration between the Industrial Bank of Korea, the Korea Credit Guarantee Fund, and others. It started at a scale of 10 trillion won last year, has since expanded to 10.5 trillion won, and a total of 8 products have been launched. The scale of support provided up to August this year is 5.7 trillion won.

The financial authorities' decision to expand the support scale again is based on the judgment that the management burden on small business owners continues due to high interest rates and high inflation. The intention is to lower the financial burden of small business owners and broaden the scope of policy finance support by reforming the existing program more widely.

However, what was discussed in this council was the direction of the expansion and reform of the Dream Package, and detailed support targets and product-specific conditions have not yet been disclosed. The Financial Services Commission plans to tentatively announce the specific reform plan at the end of September.