The staff at the Small & Medium Enterprises Department of the Korea Finance Corporation (KoFC) have their hands full with the work to flesh out on-landing loans, a new and advanced financial scheme introduced by KoFC to provide capital to the nation’s SME sector, which has technological prowess and future potential, but may still be in a financial pinch.

The on-landing loans to SMEs made their debut on July 2 as a KoFC major financial scheme designed to help them overcome financial difficulties caused by the recent euro debt crisis.

KoFC is implementing a pilot program to provide long-term low-interest-rate policy financing support to fortify the growth of the strategic industries for Korea’s future °™ new growth engine industries, green industries, and others that have a high impact on job creation. This will be implemented through three intermediary financial institutions, which are the Korea Exchange Bank, Busan Bank, and Kyongnam Bank, and it will be expanded later. 

Yang Seung-nam, head of the Small & Medium Enterprises Department, said “On-landing loans, being extended at lower interest rates than commercial banks under a longer repayment term of more than three years, is enjoying popularity among SME business owners and it’s their most sought-after long-term financial borrowing means.”

Figures released by the Bank of Korea showed that on-landing loans are extended at an average lending rate of 5.31 percent, 69 basis points lower than mid-term lending rates for savings banks. 

KoFC was established in October 2009 after taking over the role of providing policy financing support from the Bank of Korea. KoFC has been devoting itself to becoming a top-rated policy financing institution in Korea for extending financial support to SMEs. 

Unlike previous policy financing institutions, KoFC has come up with on-landing loans and other market-friendly indirect investment tools tailored to meet diverse corporate demands.   

KoFc’s financial support during the period between 2009 and 2011 amounted to 20.318 trillion won. The total amounts break down to 7.702 trillion won in on-landing loans, 7.431 trillion won in direct investments, and 5.185 trillion won in indirect investments.

By size, SMEs accounted for 39.2 percent, or 7.956 trillion won, trailed by medium companies with 1.816 trillion won, or 8.9 percent, and large-sized companies with 4.710 trillion won, or 23.2 percent.

A look at the on-landing loans extended during last year showed that 89.4 percent of the loans were in a long-term policy-financing scheme with a longer-than three year repayment period. In terms of loan purposes, 55.2 percent of the beneficiaries said they borrowed on-landing loans to buy production equipment and replace or upgrade systems for informatization.  

In this context, KoFC plans to open its branch office in Gwangju, the first such one in a provincial area, with the goal of exploring innovative provincial SMEs, a move that intermediary banks hesitate to take.   

The corporation expects that if and when the Gwangju branch establishes a foothold after 2013, it will serve as a support center for the West Coast and the Jeolla industrial complexes by capitalizing on a close proximity to China. 

KoFC does not spare efforts in implementing government-initiatives for shared growth between large- and small-size companies. The corporation has agreed to contribute 180 billion won in investments to three shared growth funds, including one for Hyundai Heavy Industries and its cooperative companies. These are private equity funds promoting shared growth between large companies and their smaller partner companies, which directly invest in the shares and equity-linked notes of the large- and small-size companies that have ample growth potential, but have problems in securing research funds. Under the scheme, invested companies will return part of their profits to society by spending it on child care homes, sports facilities, and other projects they want to pursue. 

Lee Dong-chun, chief of KoFC’s Finance Business Division, said the corporation devotes itself to buttressing SMEs, which are the backbone of the national economy.

KoFC President Chin Young-wook said in an interview, “KoFC will be the last bulwark for supporting SMEs. The nation’s policy financing institutions - Korea Development Bank and Industrial Bank of Korea - will be privatized some day, and the sequencing vacuum for providing financial support to SMEs will filled by KoFC.”