23. Japan

Japanese SMEs accounted for 99.7% of all businesses and employed 32 million individuals, or approximately 68.8% of the private sector labour force, in 2016.

Lending to SMEs declined every year between 2007 and 2012, reaching a total decrease of 6.6% over that period. In 2013, outstanding SME loans rose by 1.5%, and have continued to increase since then: JPY 286.6 trillion in 2019 and JPY 314.9 trillion in 2020.

Average interest rates on new short-term loans in Japan have been very low and continuously declined between 2007 and in 2017, more than halving from 1.64% to 0.61%, as a result of easing monetary policy. Long-term interest rates on new loans followed a broadly similar pattern, declining from 1.7% in 2007 to 0.76% in 2020.

Japanese venture capital investments peaked in FY 2007 at JPY 193 billion, before decreasing by 29.5% and 36% in FY 2008 and 2009 respectively. Since 2009, VC investments have been inconsistent. Since 2014 VC investments increased and reached JPY 289 billion in 2019, which was the highest value since 2007.The amount of investment in 2020 declined by 22.4 %, amounting to JPY 224 billion. One of the possible reasons behind this drop is that some of the VC funds could not make their investment decisions during the first half of 2020 because of the effects of the COVID-19 crisis. This might be resolved in the second half of the year by using online communication methods.

Leasing volumes to SMEs plummeted in the aftermath of the global financial crisis, dropping by almost 40% between 2007 and 2009. Subsequently, with the recovery of domestic capital investment demand, the volumes have been on an upward trend and recovered to 2.7 trillion in 2019. In 2020, leasing volumes fell to JPY 2.3 trillion due to a sharp drop in capital investment demand for machine tools and industrial machinery by Japanese companies as a result of the COVID-19 crisis.

SME bankruptcies, which account for more than 99% of all bankruptcies in Japan, decreased between 2007 and 2020. In 2020, the number of cases was below 8 000 for the first time in 30 years.

Total non-performing business loans have continuously declined since 2013, after having experienced erratic movement over the 2007-12 period. In 2019, total NPLs amounted to JPY 10 326 billion.

The Japanese Government offers financial support for SMEs in the form of a credit guarantee programme and direct loans. In March 2018, the total amount of outstanding SME loans was approximately JPY 267 trillion (provided by domestically licensed banks and credit associations); the outstanding amount of the credit guarantee programme was JPY 22.2 trillion (covering 1.3 million SMEs); and the outstanding amount of the direct loan programme was JPY 21.2 trillion, (covering 1 million of Japan’s 3.81 million SMEs). In 2020, as a response to the COVID-19 crisis, government-affiliated and private financial institutions offered interest-free and unsecured loans of up to 5 years, and provided JPY 100 trillion yen in business scale and JPY 12.5 trillion in budget.

SMEs accounted for 99.7% of all Japanese businesses and employed 32 million individuals, or approximately 68.8% of the private sector labour force in 2016.

Japan faced two major economic shocks with the global financial crisis of 2008 and the earthquake of 2011. Consequently, the country experienced an economic recession between 2008 and 2011. Since the end of 2012, however, the Japanese economy has been steadily recovering, despite several contractionary policies, including the consumption tax hike to 8% in 2014. The average annual real GDP growth between 2012 and 2016 reached 1.1%, a number that has almost doubled in the past four years.

In 2020, SMEs recorded lowest number of bankruptcies in the past 30 years. The business environment for SMEs has continued to improve, although the recovery of micro enterprises is weaker compared to large and medium-sized enterprises.

Outstanding loans to SMEs decreased every year between 2007 and 2012, and cumulatively by 6.6%. In 2013, however, outstanding SME loans increased 1.5% and have continued to increase since. Outstanding SME loans in 2016 were JPY 265.6 trillion and increased by 3.6% in 2017 to JPY 275 400 trillion. In 2017, outstanding SME loans are 5.6% higher than 2007 levels, an indication of an improving financial landscape for SMEs and a return to pre-crisis credit conditions. In 2020, in the context of the COVID-19 crisis and significant SME liquidity shortages, SME outstanding loans increased 10% y-o-y and reached JPN 314.9 trillion.

However, the share of SME outstanding loans has not recovered to pre- financial crisis levels and indicates a gap between SMEs and large enterprises. The share of SME outstanding loans dropped from 69.6% in 2007 to a low of 65% in 2014 (although it did not decrease every single year). SMEs have been investing more in recent years but not to the extent that the large companies have. Since 2014, the share of SME outstanding loans over the total outstanding loans has increased slightly and was 65.3% in 2020, still below pre-financial crisis levels.

Average interest rates on new short-term loans in Japan are very low and have declined every year for the past 10 years, more than halving from 1.6% in 2007 to 0.5% in 2020. Long-term interest rates on new loans followed a broadly similar pattern, declining from 1.7% in 2007 to 0.8% in 2020, and were thus only slightly higher than short-term interest rates.

Japanese venture capital investments peaked in 2007 at JPY 193 billion and decreased by 29.5% and by a further 36% in 2008 and 2009 respectively. Total investments recovered in 2010 and 2011, but decreased again in 2012. In 2013, venture capital investments were JPY 181 billion, thus approaching pre-crisis levels. 2014 once again saw a decrease by 35% compared to the previous year, but volumes recovered again, increasing year by year and almost doubled between 2014 and 2019 to JPY 289 billion.

Seed and early-stage investments have become increasingly important to SME financing in the venture capital sphere. In 2009, seed and early-stage investments accounted for 32.5% of total venture capital investments. This share has increased drastically since then and was 73.7% in 2019. Expansion and later stage investments accounted for only 26.3% of venture capital investments in 2019. This reversal of VC investment composition is an indicator of Japan’s vibrant and growing start-up ecosystem.

Leasing volumes to SMEs plummeted in the aftermath of the financial crisis, by almost 40% between 2007 and 2009. Between 2010 and 2013, leasing volumes recovered and expanded year-on-year. Since 2013, however, SME leasing has been somewhat erratic but nonetheless relatively stable with no big shifts in leasing volumes with the exception of 2014. In 2019, leasing volumes to SMEs were approximately JPY 2.7 trillion and dropped slightly in 2020(to JPY 2.3 trillion). Despite the slight increase, leasing volumes hasn’t reached pre-crisis levels (JPY 3.47 trillion in 2007).

SME bankruptcies, which account for more than 99% of all bankruptcies in Japan, decreased more than 7% between 8,383 in 2019 and 2020, attaining 7,773 cases. This can be explained by the favourable lending attitude of financial institutions, and increased availability of internal finance for SMEs, and a recovering economy.

Total non-performing business loans have declined continuously since 2013, after having experienced erratic movement over the 2007-12 period. Non-performing business loans declined in 2008-10 before peaking at JPY 17.2 trillion in 2012. Since 2012, NPLs decreased tremendously and totalled JPY 10.3 trillion in 2019, a 40.5% decline since 2012.

The Japanese Government offers substantial financial support for SMEs’ financing needs such as a credit guarantee programme and direct loans for SMEs. As of March 2021, the total amount of outstanding SME loans was approximately JPY 308 trillion. Of this volume, JPY 42.0 trillion was guaranteed by the credit guarantee programme and JPY 29.2 trillion worth of loans was provided directly by public financial institutions. As of March 2021, the credit guarantee program covered 1.55 million SMEs, while the direct loan program reached 1.24 million of Japan’s 3.81 million SMEs

Since January 2020, as the effects of COVID-19 infection have spread, the government has been taking steps to ensure that small and medium-sized enterprises (SMEs) do not face serious financial difficulties. Specifically, the government set up consultation desks, relaxed the requirements for "Safety net loans," and made a number of requests for consideration to financial institute. In March 2020, the government designated No. 4 Safety Nets for Financing Guarantee, which provides a 100% guarantee, as a nationwide program, activated crisis-related guarantees, and expanded the scope of industries covered by No. 5 Safety Nets for Financing Guarantee. In addition to these, government-affiliated financial institutions started substantially interest-free loans without requiring collateral, deferment of loan principles.

In May, from the perspective of expanding the lending window, private financial institutions began offering substantially interest-free loans without requiring collateral by utilizing the institution loans provided by prefectural governments, etc. The program has had a certain effect in supporting the cash flow of small and medium-sized enterprises (SMEs), and it was terminated at the end of March 2021, while decreasing of applications number.

To support businesses whose financial situation has deteriorated due to COVID-19, the government has provided "Capital Subordinated Loans against COVID-19" by government-affiliated financial institutions, which financial institutions can estimate those as capital for appraisal purposes, and has also made efforts to provide capital funds by supporting the formation of public-private funds such as the "Small and Medium Enterprise Management Strengthening Support Fund" and the "Small and Medium Enterprise Revitalization Fund" for the purpose of fundamental business revitalization in order to prevent the bankruptcy and closure of core regional enterprises.

Before the spreading of COVID-19, the government encourage banks to take on more risks. For instance, the government reformed the credit guarantee programme in 2017 to reduce banks’ over dependence on credit guarantees, to strengthen market forces, and encourage lending based on business evaluation. Specifically, the government decreased the guaranteed portion of No.5 Safety Nets for Financing Guarantee from 100% to 80% but enhanced a credit Guarantee scheme targeting start-ups as a means of promoting private sector innovation.

The procedural and costs for examining and monitoring new loans to SME reflect the problem of information asymmetry in SME finance. The government programmes address these difficulties and facilitate smoother lending circumstances especially for high-risk businesses that are not perceived as easy by private financial institutions (e.g. business start-ups, companies expanding overseas, companies facing external shocks such as natural disasters and financial/ economic crisis, and revitalization etc.).

The majority of business owners in Japan provide personal guarantees in order to obtain business loans. In some respects, personal guarantees are regarded as good tools for ensuring good corporate governance and mitigating credit risk due to low creditworthiness of customers and information asymmetries. In this regard they help lower funding costs. However, the others point out, personal guarantees are not well suited for early business revitalization, smooth business succession or willingness for the commencement of new businesses.

"The Guidelines for Personal Guarantees Provided by Business Owners" have been implemented since February 2014 to address the negative effects of personal guarantees described above. In early FY 2017, 36% of loans by public financial institutions and 26% of loans by private financial institutions did not require personal guarantees from business owners. In May 2019, “Comprehensive Measures for the Release of Personal Guarantees Provided by the Business Owners at the Time of Business Succession” was released, which includes the formulation of "Special Provisions of the “Guidelines on Management Guarantees” focusing on business succession" which clearly states that, in principle, there will be no double collection of guarantees from old and new management. In addition, a new credit guarantee system that eliminates the need for management guarantees for successors has been established and it has been in operation since April 2020.


Bank of Japan (2020), “Financial and Economic Statistics Monthly” https://www.boj.or.jp/en/statistics/pub/sk/index.htm/

Bank of Japan (2020), “Loans and Bills Discounted by Sector” https://www.boj.or.jp/en/statistics/dl/loan/ldo/index.htm/

Bank of Japan (2020), “Financial System Report” https://www.boj.or.jp/en/statistics/dl/loan/ldo/index.htm/

Financial Services Agency (2020), “Status of Non-Performing Loans”


Japan Federation of Credit Guarantee Corporations (2020), “Credit Guarantee System In Japan”

https://www.zenshinhoren.or.jp/document/hosho_jisseki.pdf (Japanese)

Japan Leasing Association (2020), “Lease Statistics” http://www.leasing.or.jp/english/statistics/toukei.html

SME Agency (2020), “2020 White Paper on Small and Medium Enterprises in Japan” https://www.chusho.meti.go.jp/pamflet/hakusyo/2021/PDF/chusho/00Hakusyo_zentai.pdf (Japanese)

Tokyo Shoko Research, Ltd. (2020), “State of Corporate Bankruptcies” http://www.tsr-net.co.jp/news/status/

Venture Enterprise Center, Japan (2020), “VEC YEARBOOK 2020–Data on Venture Capital Investment,

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