A new report from Korea Credit Data (KCD) has revealed that South Korean small businesses experienced a significant decline in both sales and profits in the third quarter of 2024, following a brief rebound in the second quarter.

According to the "Q3 Small Business Trend Report" released on November 4th, the average monthly sales and profits per small business establishment decreased by 4.2% and 13.7%, respectively, compared to the previous quarter. The figures stood at 43.31 million won and 10.2 million won, respectively.

These findings were based on an analysis of data from 160,000 small businesses using KCD's business management service, Cashnote, out of a total of 1.6 million nationwide.

After experiencing a 4.73% increase in sales and a 29.18% increase in profits in the second quarter, small businesses saw a downturn in the third quarter, which is typically impacted by summer vacations and the Chuseok holiday.

The report also highlighted a rapid increase in loans and delinquencies among self-employed individuals. According to an analysis of data from Korea Credit Bureau by KCD's subsidiary, Korea Credit Information (KCI), the average loan balance per self-employed borrower reached 290 million won in the third quarter, with the total loan balance amounting to 942.4 trillion won. Banks and non-bank financial institutions extended 608 billion won and 334 billion won in loans to self-employed individuals, respectively, representing increases of 2.9% and 3.1% from the previous quarter.

Delinquencies grew at an even faster pace. The number of self-employed borrowers in arrears reached 223,000, with a total delinquency amount of 19.3 trillion won, marking an 11.6% increase from the previous quarter. Furthermore, one out of every five businesses with outstanding loans was found to be closed. Among the total 3.679 million businesses, 709,000 (19.3%) were closed, with an average delinquency amount of 10.15 million won.

KCD estimates that the recent interest rate cut by the Bank of Korea from 3.5% to 3.25% will reduce the total financing cost for self-employed individuals by approximately 3.6 trillion won, or 1.11 million won per business.

The report also included a "sales Gini coefficient" analysis, which measures the level of income inequality among different industries. The analysis revealed that the service industry (0.734), distribution industry (0.683), and food service industry (0.555) exhibited the highest levels of income inequality.