Update : 29.10.2020
From next fiscal year, the government will begin discussions to revise Japan’s lending practices, which are heavily weighted toward real estate collateral and personal guarantees of business owners (Nihon Keizai Shimbun, October 13, 2020; Yomiuri Shimbun, October 29, 2020).
Under the current Civil Code, banks are limited to using tangible assets such as land, factories, buildings, equipment and machinery as collateral when lending to companies, and the use of intangible assets and businesses as collateral has not been widespread. The government is now considering the possibility of using the value of the entire business, including intangible assets such as corporate technology, patents, and brands, as collateral to make it easier for small and medium-sized companies and start-ups to obtain loans. Financial Services Agency will start a study group on the collateral system in the Civil Code in November and will also hold discussions with the Ministry of Justice. To amend the law, the FSA is planning to start discussions at the Legislative Council in 2021 and submit a draft amendment to the Diet in 2023.
It has been reported that the purpose of the amendment is to support small and medium-sized enterprises (SMEs) and start-ups whose cash flow has worsened due to the spread of the new coronavirus. In fact, several decades ago, from the mid-1990s to the early 2000s, after the collapse of the bubble economy, intellectual property rights (IPR) collateralized loans attracted attention as an important means of financing for cash-strapped small and medium-sized companies. However, due to the difficulty of handling IPR collateral, the number of IPR-backed loans hardly increased.
From around 2015, partly due to the announcement of the Financial Services Agency’s Financial Administration Policy for Fiscal Year 2015, loans based on business feasibility assessment, including IP, attracted attention, and IP value assessment became a hot topic again. It is important to make sure that this new policy does not end up being a temporary idea for the government’s coronary measures and fall into the same trap as decades ago, and that future achievements in intangible asset-backed lending are built up. Under the new system for valuing company’s intangible assets, financial institutions will be able to measure company’s profitability themselves, and the development of assessment abilities of banks and other institutions that lend money is believed to become a major issue in the future.
We at AIVAS are working diligently to help meet this new demand.