A law giving small and medium-size enterprises grace periods to repay debts has played a big role in averting bankruptcies during the dire economic conditions that followed the Lehman Brothers shock in the fall of 2008.
As the law will expire at the end of March, financial institutions have expressed their readiness to continue helping such enterprises in this way from April. The government needs to carefully watch lending institutions’ behavior to forestall instances of their refusing to lend money or retracting loan credit.
It is also important that if small and medium-size companies are going through business revitalization, executives and financial institutions should work out effective revitalization plans that fully utilize the companies’ resources and their fields of expertise.
The Small and Medium-size Enterprises Finance Facilitation Law, originally valid through March 2011, went into force in December 2009 to help firms facing financial difficulties beginning in fall 2008 by obliging financial institutions to change the lending conditions for them. The law has been extended twice.
Of the some 3.7 million requests for grace periods to repay debts, financial institutions honored some 3.43 million — more than 90 percent. Since requests were repeated in many cases, it is estimated that 300,000 to 400,000 companies asked for financial assistance in accordance with the law.
The aim of the law is to temporarily ease the pain of small and medium-size companies facing difficult financial situations. What is important is to provide support that contributes to improving such companies’ business in the long run. Financial institutions should aim at helping such companies improve their competitiveness and stand on their own feet, rather than just prolonging their existences.
The Financial Services Agency estimates that of the companies that resorted to using the law, 50,000 to 60,000 require special efforts to revitalize their businesses or they will have no choice but to close down. It is hoped that financial institutions will be able to provide the required revitalization assistance to such companies.
The Japan Times Weekly: March 30, 2013 (C) All rights reserved
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