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The Trend-Driven Startups Crisis: A Growing Concern in South Korea

Introduction

A recent surge in "blind startups," particularly in the food industry, has raised alarming concerns among small business owners in South Korea. The low barriers to entry combined with extensive government support through loans has created a cycle that leaves many entrepreneurs heavily in debt once the fads fade.

The Tanghulu Phenomenon

A Sweet Surge in Popularity

Take, for instance, the unexpected boom of stores selling tanghulu, a delicacy made from candied fruit coated in sugary syrup. The trend kicked off with an astounding opening of 150 new shops dedicated to this dessert in just 2023, as reported by the Ministry of the Interior and Safety. However, like many food trends, the buzz around tanghulu has a short shelf life, leading to abrupt closures and financial distress.

Rising Closures

The consequences of such fads are stark. By the end of 2024, approximately 620 tanghulu shops had closed their doors, with an additional 380 shuttering last year. This alarming pattern has echoed throughout the past decade, as we’ve seen similar trends emerge around giant castella cakes and brown sugar bubble tea.

The Debt Trap

The Financial Burden

What makes this situation even more concerning is the heavy debt many entrepreneurs accrue in efforts to capitalize on these fleeting trends. Industry insiders highlight that the government’s policies allow for these cycles to continue unimpeded, often leading to lasting financial distress for business owners.

For instance, the small-business budget for 2023, managed by the Ministry of SMEs and Startups, totals a staggering 5.4 trillion won ($3.7 billion), with a considerable 62 percent—or about 3.36 trillion won—earmarked for loan support via policy funds.

Personal Accounts of Distress

A real-life example is Lee Seung-yeon, who runs a restaurant in Eunpyeong District, northern Seoul. During the COVID-19 pandemic in 2021, Lee secured a government-backed loan at a remarkably low interest rate around 1%. However, as the economy shifted, her interest rates have surged to between 3% and 4%.

"I borrowed 50 million won back then, but the economy feels even worse now, and I have not repaid even half of it,” she says. “One million won goes out every month for principal and interest. If I had known it would turn out like this, I would have tightened my belt more and not taken out the loan."

Challenges in Loan Repayment

Temporary Relief, Lasting Consequences

Although the government does allow for temporary loan repayment deferrals when a business closes, the aftermath remains bleaker, especially for former owners. The financial burden of shutting down often compounds existing debts.

A survey conducted by the Korea Federation of Small and Medium Business of 820 self-employed workers who closed their businesses revealed that they faced an average debt of 102.36 million won, alongside average closure costs of 21.88 million won.

Fragmented Support Systems

Many criticize that despite the plethora of available support programs, their management leaves much to be desired. Currently, over 1,000 support initiatives targeting small business owners are managed by various governmental bodies, covering everything from startup assistance to business management improvement.

The Challenge of Accessibility

Knowledge Gaps

The Ministry of SMEs and Startups offers a “Small Business 24” portal for information on support initiatives. However, as four out of ten self-employed individuals are aged 60 or older, many find it challenging to navigate this resource effectively. The application processes are cumbersome and fragmented, further complicating access to available support.

Real-World Experience

Joo Sung-ha, a 60-year-old cafe owner in Gunpo, Gyeonggi, expresses her frustrations: “It is hard to properly understand what kinds of support are available, and the application procedures are so complicated that I gave up.”

Moving Towards Effective Solutions

Difficulty in Application: The Restart Support Program

In a bid to alleviate some of these issues, the government has established the restart support program designed for those facing genuine management crises. However, only 11.5 percent of the 11,067 applications filed last year came from individuals aged 60 or older, indicating that older entrepreneurs are not adequately served.

Future Planning with AI

In a positive turn of events, a ministry official recently mentioned plans to enhance the guidance and application processes utilizing AI technologies. This could mark a significant step toward bridging information gaps and streamlining application systems.

The Role of AI legalese decoder

Simplifying legal Language

In light of these challenges, the AI legalese decoder presents a valuable tool for small business owners. Not only can it simplify complex legal documents into plain language, but it can also help entrepreneurs understand their rights and obligations regarding loans.

Enhancing Accessibility

By providing clear and comprehensible information, the AI legalese decoder can empower small business owners like Lee and Joo to make better-informed decisions about their financial responsibilities and available support resources. This could lead to more successful navigation of the various programs and ultimately result in lower debt burdens.

Conclusion

The cycle of trend-driven blind startups is a burgeoning crisis threatening South Korean small business owners. With low entry barriers and government-backed loans contributing to this unstable landscape, it’s crucial to redesign existing support mechanisms. The potential integration of AI tools like the AI legalese decoder can greatly enhance understanding and accessibility for entrepreneurs, equipping them with the insights they need to navigate their financial futures.

This challenging environment necessitates innovative approaches to fundamentally resolve the issues faced by self-employed individuals, ensuring a viable future for small businesses in South Korea.

This article was originally penned in Korean and subsequently translated with the assistance of generative AI tools, undergoing reviews and edits by a native English-speaking editor.

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