Startup Loan Program

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The Startup Loan Program in Japan is a financial assistance scheme designed to support new businesses. It is provided by the Japan Finance Corporation (JFC), a public institution with 152 branches across the country.
What are the main aims and objectives?

The primary aim of the Startup Loan Program in Japan is to foster new businesses, particularly those that drive innovation and contribute to the creation of new industries. The program is a part of the broader effort by the Japanese government to revitalize the dynamism of Japanese enterprises and recognizes startups as catalysts for innovation. 

The objectives of the program include the establishment of a human resource network for startup creation, enhancement of funding supply for startups, and diversification of exit strategies. There is also a focus on promoting open innovation. Specific targets have been set, such as nurturing unicorns and doubling the number of startups and foreign entrepreneurs. 

The program aims to incubate internationally competitive startups and encourage them to provide new value to the world. Furthermore, the Japanese government intends to make Japan the largest startup hub in Asia, as reflected in their investment of about 1 trillion yen for startup support, specifically in DeepTech and drug-discovery related startups. 

How does the program work?

This program provides loans to a person who starts up a new business based on the examination of the accuracy of its business plan without any requirement for security or guarantor (for a corporation, without requirement for guarantee by its representative). 

The SME Unit provides active support to SMEs trying to develop new businesses with high growth potential, such as venture companies, through Loans to Foster Growth of New Businesses. Since the program began in February 2000, 389.1 billion yen has been loaned as of March 31, 2016. In addition, the SME Unit also offers an unsecured loan program through acquisition of new share options issued by companies.  

SMEs and micro businesses account for 99% of all businesses in Japan, and are both the source of Japanese economic vitality as well as the primary force underpinning regional economies. The size and conditions of each SME and micro business differ, such as companies that sustain the regional economy with many employees, long-established companies with a history over one hundred years and family-owned private shops. 

The SME Unit provides a wide range of support to meet the individual needs of each SME and micro business through its financial tools, Loan Programs, Credit Insurance Programs and Securitization Support Programs. 

To qualify individuals must fall under at least one of the following cases: 

(1) A person who starts a business that creates jobs (including part-time jobs) 

(2) A person who starts a business that adds any contrivance to the existing technologies or services and addresses diverse needs. 

(3) A person who started a new business as described in (1) or (2) above and has not filed a tax return for the second terms. 

*1: There may be other eligible cases depending upon work experience, etc. 

*2: Excluded are moneylending businesses, certain adult-entertainment businesses and certain pleasure and entertainment businesses. 

*3: A person who has yet to start a business or file a first-time tax return after starting the business is required to show that he has his own fund equal to or greater than one half of the total capital required for starting the business. 

The base interest rate for loans under this program is 2%. However, providing collateral provisions or a guarantor can lower the interest rate to between 1.16% and 1.95%. This competitive interest rate is designed to make financing more accessible to start-ups

What is the overall cost?
Between February 2000 and March 2016, 389.1 billion yen ($2.7 billion) was loaned to companies through the program.  
How was it implemented?
The Startup Loan program in Japan was developed as a collaborative effort between the government and private financial institutions. The intent was to foster new businesses, especially those driving innovation and contributing to the creation of new industries. The program operates through designated financial institutions such as the Development Bank of Japan Inc. and The Shoko Chukin Bank, Ltd., which provide funds to meet demand. 
What impact has been measured?

The SME Unit facilitates funds to 1.40 million SMEs and micro businesses (approximately 37%) and accounts for 13% of outstanding loans to SMEs and micro businesses.  

A report by the Japan Finance Corporation found that the SME Unit had provided loans to a total of 25,500 startups in 2022 and it estimated that 79,000 jobs were created annually as a result of the fund. This estimate is calculated using the average number of employees at firms launched using the loans to do so. However, the report does not demonstrate the direct impact of the loans using a control group. 

What lessons can be learned?

Policy-based financing in Japan not only provides financial support under the nation's key policies towards certain fields such as new business development, business revitalization and overseas expansion, fields that involve high risks which private financial institutions find it hard to support, it also quantitatively supplements the loans provided by private financial institutions whose lending attitudes may be affected by economic stagnations.  

Based on these policies, while supplementing private financial institutions as a policy-based financial institution specialized in SMEs, the SME Unit supports the growth and development of SMEs through its financial tools as well as serving as a safety net functions. 

CURATED BY

Sarolta Borzasi

Director for Government + Investor Engagement
Embassy of Hungary London
United States