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Sixteen loan brokers were arrested Tuesday on suspicion of fraudulently securing loan guarantees by a government-backed agency for small business owners in Tokyo, prosecution investigators said.

A number of small businesses in Tokyo allegedly paid huge commissions to the brokers to obtain guarantees from Credit Guarantee Corp. of Tokyo, an affiliate of the Ministry of International Trade and Industry, for loans from financial institutions, investigators at the Tokyo District Public Prosecutor’s Office said.

The arrested were named as Kiyoshi Hara, 50, Akira Murayama, 43, Yoshihiko Noutomi, 72, Yoshio Ogisu, 63, Masami Urano, 53, and employees of their management consultant companies.

The loan guarantee scheme was one of the government’s programs to support small and medium-size companies amid the sluggish economy.

The MITI affiliate offers a special guarantee program for struggling small businesses as many financial institutions, which are still trying to clean up their own bad loans, are reluctant to lend to firms with fragile credit standings.

There are certain conditions governing the size and business categories of the firms that can apply for the loan guarantee, but there has been criticism that lax screening leaves open the possibility of fraud taking advantage of the program.

The brokers allegedly falsified application documents on their behalf to successfully win the loan guarantee from the MITI affiliate.

The investigators also suspect that Hara and the others gave money and gifts to members of the Tokyo Metropolitan Assembly and the metropolis’ 23 ward assemblies and asked them to use their influence to obtain the loan guarantee for their clients.

The prosecutors arrested the suspects for possible violation of the Law Concerning the Regulation of Receiving Capital Subscription, Deposits and Interests on Deposits, which bans brokers from charging excessive fees for their services, they said.

The brokers allegedly received commissions of up to 25 percent of the loans provided to their clients — far above the maximum 5 percent allowed under the capital subscription law.

Some of the them may have received over 100 million yen in commissions, the sources said.

Under the special program, which began in October 1998, local credit guarantee corporations offer up to 50 million yen in guarantees for unsecured loans to a single company.

As of Sept. 30, a total of 1,405,753 cases of loans worth some 23.6 trillion yen were extended under the program, according to the Small and Medium Enterprise Agency.

Of the loans, 400.95 billion yen in 25,934 cases have become nonperforming, the agency said.

Loans that have become irrecoverable will be paid by the guarantee corporations, and the burden will eventually be shouldered by taxpayers.

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