Debt Burden of the Self-employed: Risk Diagnosis and Policy Direction

Abstract

■ Since the onset of the COVID-19 pandemic, debts, especially among the vulnerable self-employed, have grown significantly. In recent months, high-interest lenders exhibited a rapid increase, raising associated credit risks.

■ The analysis finds that policy financial support to individual business owners positively affects their sales and hiring and prevents closings. Negative impacts are also found, such as personal credit score downgrades of small business owners who underwent closures soon after receiving the policy support.

■ The financial authorities need to draw up financial relief plans to help small businesses hit by the spread of COVID-19 improve debt structure and reduce insolvency risk.

■ Furthermore, small businesses with little chance of survival should get different approaches such as support on the closing process to avoid liability accumulation and assistance for a restart.

■ These government support programs are significant as they can prevent the accumulated risk of insolvency of the self-employed in the prolonged COVID-19 crisis from spreading across the entire economy and can improve the long-standing structure of domestic self-owned businesses.