Financial assistance to smaller enterprises will be effective in narrowing the economic gaps between urban and rural regions, because it will help strengthen local economies. Hopefully the government's policy measures for such assistance will prove helpful.
In August, the government started a program under which Credit Guarantee Corporations will guarantee loans extended to smaller enterprises. Inventories and receivables will be put up as security. There are 52 Credit Guarantee Corporations across the country. Their task is to help smooth the borrowing of money by smaller enterprises from financial institutions.
The new system, which reduces risks for financial institutions, will make loans more available to smaller enterprises, which should make efforts to use the system.
As of the end of March 2007, outstanding loans to smaller enterprises amounted to ¥255 trillion. Fixed assets — such as land, buildings and machinery equipment held by smaller enterprises and usable as security — were valued at ¥195 trillion, while current assets — such as inventory and receivables held by these enterprises — amounted to ¥140 trillion. This suggests that if current assets are used as collateral, financing for smaller enterprises could expand. Shokochukin Bank, a government financial institution whose task is to financially help smaller enterprises, started providing loans to such enterprises in 2005 by taking current assets as collateral.
Smaller enterprises can expect to receive loans based on current assets if they are good at overall business management, including management of inventory and quality control. This will give them an incentive to improve their business operation. On the other hand, financial institutions need to develop methods to properly assess the value of current assets.
Efforts should be made to extend current asset-backed loans to smaller enterprises that truly need financial help. Expansion of such loans will help stimulate local economies overall.