The government has submitted a bill to the Diet to help small and midsize enterprises overcome cash-flow problems. An increasing number of enterprises earning operating profits are going bankrupt after being pressed by lenders to repay loans. It is hoped that this bill will help such companies avoid having to file for bankruptcy.

The idea for the bill at first caused some controversy as Financial Services Minister Shizuka Kamei had called for a "moratorium" on repayments of loans. The bill's wording has been softened, avoiding the word "moratorium." If the bill becomes law, it will be in force through the end of March 2011.

The bill covers small and midsize enterprises — with no more than 300 employees or ¥300 million in capital in the case of manufacturers — that have been pushed into a corner by the current financial crisis and economic downturn. The companies will have to be judged capable of turning themselves around if the economic environment improves within two to three years. The bill also covers people who took out housing loans.

The bill states that banks, credit associations, cooperatives, etc. should "make efforts" to revise their loan contracts by prolonging repayment periods, offering terms for refinancing or other measures upon the request of borrowers. The lenders will decide on their own whether to do so.

The Financial Services Agency will modify legal definitions so that loans whose terms have been revised will not be classified as nonperforming. The government will partially guarantee the loans through a credit guarantee corporation. Lenders will be required to submit relevant reports to financial authorities. If they falsify reports or retract previously extended loan credit without sufficient reason, they will face penalties.

For the new system to work, borrowers and lenders must talk candidly with each other. Borrowers must be ready to undertake serious efforts toward reconstruction and be able to present convincing business plans to lenders. For their part, lenders need to understand borrowers' hardships of late and correctly assess their prospects. The new system will not function properly unless both parties to loan contracts succeed in building trustful relationships.