Japan has begun implementing a pioneering “corporate value collateral rights” system that enables loans to be issued based on a company’s technological capabilities, customer base, and future business potential. 

This initiative shifts away from traditional lending that depends on real estate collateral or personal guarantees. It prioritises assessing a company’s growth potential to secure funding.

The system is expected to particularly benefit startups with strong technological assets but limited capital, as well as successors of family businesses facing capital constraints. 

Meanwhile, experts in South Korea, where “productive finance” policies are gaining traction, are advocating for similar recognition of corporate growth potential as collateral.

Launch of the Business Viability Loan Promotion Act and early adoption

On March 25th, Japan’s Financial Services Agency (FSA) enacted the “Business Viability Loan Promotion Act,” which introduces the corporate value collateral rights framework. 

Following this, Mizuho Bank, one of Japan’s major banks, selected “Bloom Dining Service,” operator of the Nagoya-based chicken franchise “Gabri Chicken,” as the first recipient of a corporate value collateral loan. 

Additionally, regional Japanese banks have begun extending loans based on corporate value to local accommodations and factories. The FSA reported that 20 financial institutions plan to provide 26 loans under this new system.

The FSA recognises the need for balance in evaluating future value. If financial institutions are too cautious, it may limit funding availability. Conversely, being overly optimistic can lead to a rise in non-performing loans.

To mitigate these risks, the FSA mandates regular communication between lenders and borrowers, requiring companies to provide timely updates on key business activities.

In the event of loan defaults, financial institutions have the authority to take over and manage the business, facilitating early restructuring. Labour unions must be consulted during such transitions to ensure employment continuity.

South Korea’s perspective: Limitations of credit-based lending

In South Korea, there is growing advocacy for introducing corporate value collateral rights. Although the government promotes “productive finance” to increase the supply of capital to startups and promising companies, no transformative measures based on future value have yet to be implemented.

Currently, loans in South Korea are issued through evaluations by the Technology Credit Bureau (TCB), which assesses technological capabilities and growth potential. Credit rating agencies assign grades based on these evaluations, influencing loan approvals. 

However, critics argue that TCB functions essentially as a credit loan model with adjustments favouring tech companies, but with inherent limitations in loan amounts and eligibility. Consequently, the volume of technology credit loans in South Korean banks has stagnated at approximately 300 trillion Korean won for several years.

Features of the corporate value collateral system

The system’s fundamental principle is that Financial institutions should consider both a company’s tangible assets and its intangible future values—such as patents, customer relationships, and growth potential—as valid collateral.

This allows companies with limited current revenue or property to secure loans if they demonstrate credible growth potential. 

Additionally, loans backed by collateral under this system generally have higher borrowing limits than conventional credit loans based solely on creditworthiness.

Target beneficiaries and historical context

Startups, regionally based companies, and businesses undergoing succession are anticipated to be the primary beneficiaries of this system. 

Historically, Japan’s loan structures have been heavily dependent on real estate collateral and personal guarantees, a legacy of past financial crises that weakened support for growth-oriented companies. 

The FSA emphasised that even companies currently operating at a loss on paper can qualify for loans if they possess solid technology, products, and credible future plans.