Scale-up finance support budget covers only 10% of corporate applications

2024.10.22. The Fair Economy — Kim Jeong-ho, a Democratic Party of Korea lawmaker on the National Assembly's Committee on Industry, Trade, Resources and SMEs, said on the 22nd that, according to documents submitted by the Korea SMEs and Startups Agency, the budget for the scale-up finance support program is 100 billion won this year but is set to be cut again to 60 billion won in the government's budget proposal for next year.

According to the Korea SMEs and Startups Agency's September announcement of the "2024 Second Scale-up Finance" participant recruitment, 278 companies applied, and applications totaling 1.5737 trillion won—more than five times the originally planned issuance size of 280 billion won—were received. Small and medium-sized enterprises obtain needed funds by structuring the corporate bonds they issue through Scale-up Finance into asset-backed securities (P-CBO) and selling them to private investors or the Korea SMEs and Startups Agency.

However, despite the Scale-up Finance Support Program, which the Korea SMEs and Startups Agency supports, consistently attracting strong interest from companies—receiving 2 trillion won in 2019 and 1 trillion won in 2023—the budget remains at only about 10% of the annual application amount.

The scale-up finance budget has continued to decrease from 100 billion won in 2019 to 97.4 billion won in 2020, 70 billion won in 2021, and 60 billion won in 2022 and 2023. It recovered to 100 billion won this year, but is set to be cut again to 60 billion won in the 2025 government budget proposal.

In addition, a comparison of interest payment methods by P-CBO handling institution shows that the agency issues bonds as prepaid (1-year) coupon bonds, where interest is paid in advance on the first day of the interest calculation period. In contrast, the Korea Credit Guarantee Fund and KIBO use a deferred (3-month) coupon bond method, where interest is paid at the end of the interest calculation period at set intervals.

In response, Kim emphasized, "Despite being a financial support program that eases the burden on SMEs that find it difficult to issue corporate bonds with their own credit, the budget was repeatedly cut for four years from 100 billion won in 2019 and barely recovered this year, only to be cut again to 60 billion won in the government's budget proposal for next year. It is necessary to expand the scale-up finance budget so that SMEs can grow into unicorn companies through scale-up."

He also pointed out, "KOSME's interest payment method requires companies to pay one year's interest in advance when issuing bonds, which hinders flexibility in fund management and can create liquidity risks due to additional financial burdens," and added, "We need to review whether KOSME, as a policy financial institution, is adopting a backward payment method, and consider changing the interest payment method in consideration of the companies' position."