At the end of fiscal year 2008, Laox, a duty-free shop familiar to visitors to Japan, was still an old-brand electrical appliance store. Due to the sluggish domestic consumption and fierce competition in the industry, Laox’s cash flow deteriorated sharply. In order to obtain the urgently needed working capital, Laox raised a 300 million yen loan with the guarantee of the logistics warehouse and the home appliances in the store. It is the Japanese legal person of the American investment company Gordon Brothers that provided movable property guarantee financing. Movable property secured financing was relatively new in Japan at that time.
Popular with SMEs
In the early 2000s, when financing in Japan, most financial institutions required borrowers to use real estate as a guarantee. Especially for small and medium-sized enterprises with relatively weak credit, the vast majority of financing needed to be guaranteed by real estate. This made SMEs face high loan thresholds. For small and micro enterprises without real estate, it was even more difficult to obtain the loans needed to expand their business.
In addition to real estate, personal guarantees are also popular in Japan. Obtaining personal guarantees is also an important way for small and micro enterprises to raise funds. In the event of a debt default, the guarantor must assume the obligation to repay the debt even if the house is sold. Since personal guarantees are extremely risky, seeking personal guarantees is equally difficult for small and micro enterprises.
According to statistics, in the mid-2000s, the total amount of movable assets such as equipment, inventory and debt receivables held by Japanese companies was about 138 trillion yen, which was more than the total amount of real estate (86 trillion yen) in the same period. If movable property is used as a guarantee asset, it can greatly alleviate the dependence of corporate financing on real estate guarantees and personal guarantees and improve the current situation of SMEs’ difficulty in obtaining loans.
At the end of the last century and the beginning of this century, Japan began to plan to introduce a movable property secured financing system. Following the introduction of the “Debt Transfer Registration System” in 1998, the “Movable Property Transfer Registration System” began to be implemented in Japan in 2005, helping the promotion of movable property secured financing.
Movable property guarantee financing is a very useful financing method for small and medium-sized enterprises in Japan and even rural areas. For example, in some local small wineries, small workshops, farms, etc., although the business scale of the enterprise is small, it can meet the needs of specific consumers and have stable marketing. Therefore, they have also become favored customers of local banks. The introduction of highly movable property as collateral to achieve diversification of collateral is also the internal demand of financial institutions.
This is because when the bubble economy burst, the price of real estate as collateral fell sharply, which once plunged Japanese financial institutions into deterioration or even bankruptcy. Using movable property as collateral can alleviate the problem of over-reliance on real estate and personal guarantees for collateral and prevent double guarantees of collateral.
Help big companies tide over difficulties
As it meets the needs of both enterprises and banks, movable property guarantee financing has developed rapidly in areas with many small and medium-sized enterprises in Japan. The amount of financing has grown rapidly and the speed of popularization has exceeded industry expectations.
As of the end of the 2017 fiscal year, Japan had more than 300 financial institutions with a balance of movable property secured financing, including large as well as small and medium-sized financial institutions. With a wide range of participation, the nation’s movable property secured financing reached 2.4957 trillion yen.
The Ministry of Economy, Trade and Industry, the Ministry of Justice, the Ministry of Finance and the Bank of Japan have all played an escort role in advancing the secured financing of movable properties.
Movable property secured financing is not only welcomed by small and medium-sized enterprises everywhere. Taking the 2008 global financial crisis as an opportunity, movable property secured financing as a means of financing has also begun to gain popularity among large Japanese companies. Large companies such as Laox and Pioneer have used movable property guarantee financing to tide over difficulties.
In a telephone interview with reporters a few days ago, the person in charge of Laox said that with the help of movable property guarantee financing, Laox has survived the hardships at the end of the 2008 fiscal year (April 2008 to March 2009) before having subsequent capital cooperation with Suning. In fact, for later Laox, movable property secured financing has become a common financing tool.
It is worth mentioning that in Japan, intellectual property assets such as trademarks and patents can also be regarded as movable property for secured financing. This increases important financing opportunities for start-ups that have strong technology but lack funds.
Both borrowers and lenders have their own problems
However, experts say that, like real estate secured financing, movable property secured financing also has risks. Both borrowers and lenders need to fully understand the risks of movable property secured financing.
For companies in financial difficulties, secured financing of movable property is undoubtedly promising. But we must never regard movable property secured financing as an alchemy that can turn inventory into funds. Before adopting it, it is necessary to fully understand the risks of this financing method, otherwise it will be embarrassed because of the collateral being taken into custody.
Aki Kaneshiro, a professor at Gakushuin Women’s University, said that movable assets such as commodities are the lifeblood of enterprises. Once the lender exercises the security rights, the business activities of the enterprise may be forced to stop.
However, Jincheng Aki also said that because of the huge risks, a strong sense of crisis would make borrowers do their best to avoid debt default. In the United States, where movable property guarantee financing is relatively mature, the default ratio is only about 1%.
On the other hand, movable property guarantee financing will also face a series of difficulties for financial institutions that have long been accustomed to real estate as collateral. In the initial stage of the introduction of the system, financial institutions did not have more experience in evaluating, managing and disposing of collaterals such as equipment and products. This was time-consuming and laborious. It is possible to stay away from the financing method of the company. In this regard, experts believe that the central bank and financial authorities should introduce relevant countermeasures in a timely manner to provide guidance and support.