The government plans to encourage lenders to freeze debt repayments for small businesses under a nonbinding target, not a legal obligation as previously feared by the loan industry, according to the outline of a bill released Monday by the Financial Services Agency.

The outline does not include the word "moratorium," which Financial Services Minister Shizuka Kamei previously used.

Instead, it states that financial institutions should "make efforts to allow changes in lending conditions and refinances as much as possible" when requested by small and midsize companies.

Lenders should do so while "taking into account the possibility of companies' business improvement and turnarounds," it says, suggesting lenders can be selective and respond within a defined range of flexibility.

The wording comes in line with recent comments by Kohei Otsuka, senior vice financial services minister, that "a moratorium is included in 'changes of lending conditions.' "

The Democratic Party of Japan-led government plans to submit the bill to the Diet after obtaining approval at a Cabinet meeting Friday. The Diet opened a monthlong extraordinary session Monday.

Kamei has proposed financial support measures for small companies and repeated comments that suggest the government may force banks to freeze debt repayments, inviting criticism from the financial industry.

Banks and financial experts have all bashed Kamei, arguing such a measure would cause moral hazard among borrowers and would not help strengthen those companies or the economy over the long run.

Kamei's sudden announcement to seek a freeze on debt repayments has also caused discord among Cabinet members, who oppose compulsory measures against lenders.