This month's featured article
What Is Necessary for SMEs to Exit from the Economic Crisis under the COVID-19 Pandemic? Improving profitability to repay financial support
UESUGI IichiroFaculty Fellow, RIETI
Under the COVID-19 pandemic since 2020, loan support programs have been implemented on behalf of small and medium-size enterprises (SMEs) on an unprecedented scale. So-called “zero-zero loans,” or loans with no interest and no collateral, have been provided by private-sector and government-affiliated financial institutions. It is also noteworthy that support measures such as subsidies and benefits, including business continuity grants, rent relief grants, and employment adjustment subsidies, have been implemented on a large scale.
Those business support measures as a whole have had the effect of significantly holding back closures of existing companies by reducing bankruptcies.
Looking at the current levels of the business conditions diffusion indexes (DI) in the Bank of Japan’s “Tankan” short-term economic survey report, the DI for SMEs is already higher than the levels seen at the expiration of the two large-scale credit guarantee programs implemented during past crises (March 2001 and March 2011, respectively). With government-affiliated financial institutions’ “zero-zero loan” programs winding down at the end of September 2022, the crisis response mode of liquidity supply is gradually returning to normal.
Although there is the risk of global inflation or a recession due to monetary tightening, we may say that for SMEs in general, the need to make up for liquidity shortages attributable directly to the pandemic through financial support has weakened.
SMEs that have used loan support programs are stuck with the obligation to repay the funds received to this point. Only when they have recovered from the temporary slump in earnings due to the pandemic can we say that they have overcome and exited the loan crisis. That is the point when they can make the repayment.
Therefore, this article examines the debt repayment capability for SMEs that used loan support programs before November 2020 based on a study being conducted by the author together with Tomohito Honda, a researcher at Hitotsubashi University, Professor Kaoru Hosono of Gakushuin University, Professor Daisuke Miyagawa of Hitotsubashi University, and Professor Arito Ono of Chuo University.
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