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Are loans, subsidies and tax breaks too little, too late, too complex to salvage small companies ravaged by virus?

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By Julian Ryall for The ACCJ Journal

The events of the first four months of 2020 have been, quite simply, devastating. The emergence and explosive spread of the novel coronavirus has exacted an appalling toll on the lives and well-being of millions around the world. Inevitably, the impact has spilled over into the economic realm.

Today, with countless businesses shuttered and workers from New York and San Francisco to Tokyo and Osaka laid off or furloughed, owners must cope with situations that most could never have expected to face. Their concerns are numerous and multi-layered, and include ensuring that cash continues to flow, staff are paid, customers and suppliers feel reassured, stock is procured and, of course, the company’s products or services remain available.

Fortunately, most governments have realized that small and medium-sized enterprises (SMEs) are the lifeblood of their economies—particularly here in Japan—and are rolling out programs designed to see them through these difficult times. There have been hiccups—and more will undoubtedly crop up as governments try to provide sustenance on a scale never before attempted—but the political will is at least in place.


SMEs are arguably among the most vulnerable at a time of economic shock. Business research provider Teikoku Databank Ltd. reported in late April that 69 companies had gone under in the first three weeks of the month, taking the total past 100 since the crisis broke. The majority, it said, were SMEs, with hotels, inns, bars, and restaurants particularly at risk as people follow the government’s advice and stay home to help stem the spread of Covid-19. With job losses mounting and savings dwindling, the public is also motivated to spend less, further hitting companies’ bottom lines.

The Teikoku Databank report concludes that many more cash-strapped companies will shut down for good unless financial support is swiftly forthcoming from the government. The find­­ing is supported by an NN Life Insurance Co survey which reported that 39.2 percent of SMEs said they will be able to stave off bankruptcy no longer than the end of June. Many say they have far less time. It is good practice for both companies and individuals to have enough cash on hand to cover a minimum of three to seven months of expenses in case of an emergency.

“If the current lockdown continues beyond May 31—which I think has a 50 percent chance of happening—then a whole class of SMEs may not survive,” said Frank Packard, president of Triple A Partners Japan Co, Ltd, which provides cross-border financial services in Japan. “At-risk companies include, but are not limited to, SMEs operating in sectors such as restaurants, transportation, energy, tourism, hospitality, entertainment, retail, real estate, media, and music.

“Certainly, current economic conditions are stormy—sharply and suddenly bad for many companies and formerly employed people,” he said. “However, even though we are all facing the same storm, each of us is in a different boat. And we will not all face the same fate.”

Travel document provider DocuMonde Inc President and CEO Thomas R Shockley, who is also chair of the American Chamber of Commerce in Japan Independent Business Committee (IBC), concurs that as many as 30 percent of Japan’s SMEs—as well as one or two of the nation’s business “powerhouses”—will not survive.

“There will be no ‘inverted V’ return this time,” he told The ACCJ Journal. “Rather, it will be a slow growth with a few ups and downs until we can all feel comfortable to socialize freely once again. And that could be as far off as March or April 2021.”


In early April, the Japanese government outlined measures to help companies in Japan—including foreign-owned ones—that are experiencing financial hardship due to the pandemic. By the end of the month, additional programs had been added, all of which can be seen at the website of the Ministry of Economy, Trade and Industry (METI) at meti.go.jp/covid-19

Among the available assistance, METI is offering consul­tation services, providing funding to companies that want to have their staff work from home, relaxing import and export procedures, and helping cover the wages of employees.

The measures were welcomed in a statement by the ACCJ and the chambers of commerce in Japan of Australia and New Zealand, Britain, and Canada, the European Business Council in Japan, and the International Bankers Association of Japan. But they also proposed other moves to greatly benefit struggling companies. The proposals include:

  • Introduction of a grace period for all tax filings and payments
  • Deferral of contributions to social insurance
  • Extension of net operating loss carryback for losses since January 2018 but before January 2021
  • Relief from individual reporting requirements during periods of remote working

The chamber has also set up a dedicated Business Continuity Network section on its website.

“I’ve been keeping abreast of what is available, although it is difficult to know all the details of what applies to my spe­cific situation. But I have a really good accountant that I have complete trust in, and I’ve asked him to keep on top of this for me,” said Steve Bleistein, founder and CEO of Relansa Inc and a vice-chair of the IBC.

Bleistein says the up to ¥2 million that is being made avail­able as a stimulus is “a start, but that amount will not go far. And I am going to have to assume that more is going to be made available.

“I’m a solo consultant, so I have agility that other companies will not have. But rapid access to credit and stimulus funds would be bene­ficial to the business and would help to even out some of the periods of instability that are sure to happen.”

METI has gathered information about its Covid-19 programs on a single page at meti.go.jp/covid-19


Annie Chang, president of AC Global Solutions Ltd and a vice-chair of the IBC, said one of her biggest fears is running low on capital and not being able to pay staff salaries. She criticized the government’s response for struggling companies as being “very slow.”

“I’ve been following the Japanese news on the assistance that is available and speaking with my accountant to find out the correct information. But I have heard that it is hard to understand and not straightforward,” she said.

One measure that would help Chang’s business would be a government-administered fund to provide financial support, without interest, for SMEs. In addition, the application proce­dures would need to be simple and conducted online, she said.

Kenneth Gale, director of the No Borders International School in Nagoya, warns that a number of businesses that he is aware of “are hurting” and that many do not have the reserves to stay afloat for an extended period of time.

“Aside from the anxiety and stress, I would say many busi­nesses probably went through a series of phases of different challenges,” he said. “At first, they tried to cut back, then they realized that this is continuing, so the next phase was adapting. Now a lot of us are just trying to maintain where we are.

“Personally speaking, one of the hardest and constant issues on my mind is my staff,” said Gale, who is a vice-chair of the ACCJ-Chubu ICB. “Having about 80 staff staying home and about 15 working, my heart goes out to them. I know they are nervous and fearful, so one of our biggest priorities is not only to serve our student population as best as possible, by switching to online classes, but also to support our staff during these challenging times.”


Shockley, whose company operates in the hard-hit international travel sector, has actively been looking into the support that is available. “There is an honest intent to provide assistance in terms of loans and grants,” he insists. “Regrettably, those firms somewhat established—in business for, say, five years plus—will have a greater chance to be supported under whatever programs are finally created. And no matter what is created, there will be problems.”

He fears that many of the loan packages are being snapped up by companies that will only actually need the support in six months’ time, leaving a shortfall for SMEs that need the funds immediately.

“Applying for a loan is, at present, difficult, because we cannot determine if our business model will generate the sums to pay down the loan in the future,” he said. “When the grant guidelines are released, we will apply to ‘buy us some time’ to where we can better understand if we should take out a loan or not. The problem is that by that time—August or September—all the loan support will be depleted. And many SMEs are in the same position. Business prospects will not be at all clear until fall, and we need a package of bridging grants until then.”


Mike Alfant, group chairman and CEO of Fusion Systems Group, concurs that the Japanese government’s actions thus far have been “well-intentioned,” but are “insufficient and being poorly executed.”

“There are too many different schemes for too many differ­ent issues—support for teleworking, non-guaranteed loans, fur­loughed staff, the list goes on. And they are at the national or local level, and it’s just confusing,” he said. “This is something that needs to be done very quickly and very efficiently, so it needs to be centralized and all laid out very clearly.”

Alfant, who chairs the ACCJ’s Emergency Disaster Response Advisory Council, used the analogy of a vehicle that is stuck in mud and on an incline to explain how busi­nesses simply cannot afford to come to a full stop. If they do, there may not be sufficient energy to get moving again.

“The longer a business waits, the deeper it sinks in the mud and the harder it becomes to get forward momentum again,” he said. “This is the challenge.”

There is one solution the government could implement immediately that, he believes, would go a long way to rescuing many companies. The government should simply return the corporate tax paid last year. This could be done in 72 hours, he estimates, on the understanding that companies keep their staff and “stay in motion.”

Mary Nishikawa, founder of Lexaly Communications and vice-chair of the IBC, believes that companies cannot afford to rely solely on government support to get through the months ahead. “Businesses that immediately plan for the long term will survive,” she emphasized.

“A company needs to consider scenarios of how the virus could spread and create a safety plan. How would the virus be transmitted to you, your employees, or your customers? How would you prevent that transmission?

“Those in specific industries should discuss strategies that would work for them and implement them now or when they reopen,” she added. “Businesses that bring together large groups of people in close quarters—such as large meetings, conferences, or trade shows—are particularly affected and might not be able to operate as they did in the past until there is a cure or vaccine.

“After that, you need to rethink your business as if it were your first year of operation,” she added. “You may need to change your business model and write a new plan. For some companies, bankruptcy and renewal might be the only way out.”

Packard, who is an ACCJ governor and chairs the Alternative Investment Committee, said companies need to be proactive in devising strategies for avoiding catastrophe, adding that he is “confused at the expectations of so many people—both here and in the United States—for government support to bail out companies.

“Time is one of the most precious resources for an SME,” he said. “In our particular case, I worry about spending time chasing government support instead of executing business. Applying for government support programs, such as debt relief, lease rent abatements, and low-interest loans may work for certain cases, but not for our financial services business.

“Support programs, in my view, will have poten­tially only one-time effects, and they will not sustain my busi­ness. To me, it doesn’t make sense to look for govern­ment support for our business if such support will have relatively low payoffs and low probabilities.

“I am focused on man­­ag­ing, maintaining, nurturing, and conserving what we do with our existing clients. Managing wisely our time and stretching our imaginations for what we can do to add value to clients—these are the two most important activities for this SME.”

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ACCJ Business Continuity Network


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Custom Media publishes The ACCJ Journal for the American Chamber of Commerce in Japan.

© The ACCJ Journal

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