Japan Eyes New Legislation to Allow Startups to Get Loans Based on Their Growth Potential
![](https://japannews.yomiuri.co.jp/wp-content/uploads/2022/06/20201112G0TG0PK9990243.jpg)
The Financial Services Agency
6:00 JST, October 16, 2023
The government plans to establish new legislation that will allow emerging as well as small and midsize companies to obtain loans based on their growth potential, among other factors.
The aim is to boost businesses by allowing startups without real estate or other tangible assets to raise funds using their technological capabilities or customer base as collateral.
The legislation will be included in the economic stimulus package to be finalized by the end of October, according to government sources.
The Financial Services Agency aims to submit a bill during next year’s ordinary Diet session as a special law under the Civil Code.
It is common for companies to use real estate such as land and buildings as collateral when obtaining loans. The financial practice of providing loans to those with adequate collateral makes it difficult for emerging companies with few tangible assets to obtain loans despite having promising business prospects.
Under the new law, a system will be created in which businesses can obtain loans based on the total appraised value of their tangible and intangible assets. Intangible assets are expected to include a company’s unique know-how, technological capabilities, customer base and transaction data.
In addition to startups, small and midsize enterprises such as long-established ryokan inns and restaurants will be able to receive loans more easily because their local name recognition and trust relationships with business partners will be evaluated.
Financial institutions will be able to increase the number of loans that do not rely on real estate collateral if the business of loan recipients improves through having higher collateral values. However, there is the risk that the loans will become uncollectible if a company’s financial situation deteriorates. For this reason, it is important for lenders to hone the ability to fully understand the business of loan recipients and to determine their growth potential through continuous inspections of their financial conditions.
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