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Economy

Japan's ailing small businesses hang by a 1-month thread

Government aid efforts struggle to keep pace with coronavirus fallout

The coronavirus has pushed at least eight Japanese businesses into bankruptcy.   © Reuters

TOKYO -- Japan's newly approved 1 trillion yen ($9.6 billion) bailout for companies impacted by the novel coronavirus arrives as most small businesses limp along on just a month's worth of cash.

The latest financial aid measure, announced Tuesday, will extend low- to zero-interest loans to small and midsize businesses suffering decreased sales, as well as self-employed individuals in a similar crunch.

But the unsecured loans will be disbursed by the Japan Finance Corp., which takes weeks to issue the financing after the initial application.

"The average small to medium-size enterprise has access to only about one month of funds on hand," said Nobuo Tomoda, a director at credit reporting agency Tokyo Shoko Research.

The government is working to speed up the approval process, but it remains a fight against time since most businesses hurting for funds close their annual book at the end of this month.

At least eight companies have gone bankrupt due to the coronavirus, Teikoku Databank reported Wednesday. The disease delivered a final blow to businesses that were already struggling, the Tokyo-based research firm said.

Ai Travel, a Hiroshima bus tour provider, filed for bankruptcy Tuesday at a local court. The company had been squeezed by grueling competition before the coronavirus hit.

For a food provider in Ibaraki Prefecture north of Tokyo, the school lunch business came to a virtual standstill amid the wave of school closures. Those sales account for 30% of its revenue.

At the end of January, the government opened more than 1,000 points of contact to help businesses address the coronavirus fallout. These locations are run through institutions such as the Japan Finance Corp. and Shoko Chukin Bank, two state-backed lenders.

As of Monday, consultations had been provided on more than 30,000 cases, with 90% concerning cash flow. The number of cases shot up roughly 90% over five days.

On Wednesday, the Ministry of Economy, Trade and Industry opened its own consultation center targeting small-to-midsize companies.

The COVID-19 outbreak has hurt businesses in many industries, from tourism to food services to manufacturing.

One building contractor has not been able to procure Chinese-made materials, nor recoup payments for homes already constructed, according to a credit union in central Japan.

At Tokyo-based credit union Johnan Shinkin Bank, two-thirds of the companies the lender does business with report dwindling revenues. A third of the companies have experienced disruptions in procuring stock.

For a small business, the loss of even one order can leave a black eye. A semiconductor-related company in Tokyo was forced to postpone delivery of materials to a Chinese client, originally scheduled for late January, making it difficult to defray development costs and other expenses.

"In terms of cash flow, we expect to obtain additional financing from a financial institution," said the president of the company. Still, the chief admitted making a miscalculation in "forecasting a recovery in the semiconductor market this year." 

The coronavirus fallout has caused global financial markets to gyrate wildly over the past several days. "I assume there are some smaller businesses that have lost the courage to take on new debt," said a representative at a Tokyo credit union.

In 2019, the number of business failures nationwide rose for the first time since 2008. The labor crunch and a lack of successors at family operations were common threads at the time. If the outlook remains grim going forward, more companies could close up shop.

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