Supports from the government — overcome Covid-19 damages
By: Miho Tanaka
Tags: Corona, Support, Government, Loans, Japan

Slowing tourisms, cancellation of events, empty restaurants… COVID-19 has been damaging economy and business activities. Small enterprises are striving to survive this situation, and the Japanese Government is trying to help.

What does the Government offer with ¥1.6 trillion?

There are two major players to help SMEs according to the direction from the Japanese Government.

1. Japan Federation of Credit Guarantee Corporations (信用保証協会)

2. Japan Finance Corporation (日本政策金融公庫)

Japan Federation of Credit Guarantee Corporations (CGC)

helps becoming a guarantor of the loan borrowers. If the borrowers cannot repay the amount that they took out, Japan Federation of Credit Guarantee Corporations takes responsibility on behalf of the borrowers, and pay the loan back to each financial institutions.

Banks, credit unions, and financial institutions can easily offer loan programs to the borrowers because they have the insurance from Japan Federation of Credit Guarantee Corporation.

Japan Finance Corporation (JFC)

is a policy-based public financial institutions that helps SMEs. Most of the borrowers from Japan Finance Corporation are Small Enterprises. The average amount of loan is less than 30 million JPY (94% of all the borrowers).

Out of the 94% borrowers, 51% borrows 5 million JPY. It assists SMEs having hard time taking out a loan from banks.

¥1.6 trillion is used for finance management for SMEs with cash flow problems under COVID-19 pandemic.

What’s special about the COVID-19 related support?

Japan Federation of Credit Guarantee Corporations taking risks

Normally Japan Federation of Credit Guarantee Corporations (CGC) guarantee a part of the loan. Usually it covers 80% of the loan and leaves 20% to financial institutions (banks, credit unions, etc.) that actually make decision to offer the loan to the borrowers. Financial institutions still need to take a risk when the borrowers cannot pay back. Banks and Credit Unions may think reluctant to assist SMEs with cash flow problems.

This time, Japan Federation of Credit Guarantee Corporations covers 100% — no risk for financial institutions.

Japan Finance Corporation helps SMEs 7 days a week

Japan Finance Corporation (JFC) always has consultation desks for SMEs, and they offer the service 7 days a week now. It has various kinds of loan programs for sole-proprietors and SMEs, and the interest rate for all programs are relatively cheaper than what the other financial institutions offer.

Under this circumstance, the interest rate of loan programs that JFC offers reduced — 0.9% minus for all the programs. No guarantor, No collateral, and minus 0.9% interest rate for the next three years.

For example, the average SMEs are supposed to pay 1.11% interest on top of the amount that they borrowed, but it reduced to 0.21% (1.11–0.9).

Can I apply for it?

The target applicants of this special financial support are those experienced the decline of sales.

Sales in the last month reduced by more than 5% compared to the same month last year or 2 years ago

If the business is very young (operating 3+ months but less than 1.1 years), the measurement will be 5% sales decrease compared to

the average sales in the last three months

the sales in December 2019

the sales from October 2019 to December 2019

And more

Some industries such as tourism and restaurant are facing drastic decrease of sales, and the government is focusing its efforts on these industries by offering interest replenishment.

Out of the loan borrowers, the below can get interest replenishment.

Sole Proprietors (including freelancers)

Small Enterprise (legal entity) — sales reduced by 15%

Medium Enterprise — sales reduced by 20%

The difference between Small Enterprise and Medium Enterprise is the number of the employees. For manufacturers, construction industries, transporters, the number is less than 20 people.

For retailers or service industries, the number is less than 5 people.

Some plus points for subsidy programs

In addition to the loan programs, some subsidy programs assist SMEs with financial damage under COVID-19 outbreaks.

Monozukuri Subsidy (read the detail on SUBSIDY TIME!) accepts the applicants to cover expenses that they paid before they get accepted from the subsidy office.

The other programs are also offering the applicants with the damage to get higher points.