Bank loan for small company

[TokyoWart]

What is the difference between defaulting on a personal loan and a company loan when you have the money to pay it back? None. Morally speaking.

For a limited liability company or as stock shareholders, we would never think there is a moral obligation for shareholders to pay the company's debts if it went bankrupt and that legal structure is one of the most important things which enables a functioning stock market. (About 130 years ago in the US, bank shareholders did not have this protection and could be held personally liable when a bank went under, which severely restricted the function of banking.) Unfortunately for KyushuWoozy in almost all cases a small business or sole proprietorship doesn't have enough assets to get approval for a loan without the business owner becoming liable (at least in the US) and so the debt of a small business is really the personal debt of the business owner. Hopefully this program in Japan is an exception to that general rule.

[KyushuWoozy]

As I understand, defaulting on a company loan doesn't have any effect on personal credit rating.

Saw my accountant today and seems above info isn't correct. He says that although technically a company is 'limited' the Director will need to act as personal guarantor.

Also suggest if anyone else is thinking of going this route better start soon. There's a ton of paperwork and a bewildering number of offices to visit.

[stevendorrans]

He says that although technically a company is 'limited' the Director will need to act as personal guarantor.

This is my understanding although of course it depends on the details of the loan agreement you sign.

In general, Japan is one of the worse places if you go down the route of defaulting on loans or bankruptcy. The Japanese don't like the concept of 'debt' so there are systems in place to make it difficult to escape your liabilities.

[KyushuWoozy]

We sent our loan application after finally gathering all required documents and data. Even our accountant was confused about the requirements. We applied JFC for interest free loan.

Any other business owners been there, done that or in the process? Would love to hear your experiences. Feel free to PM me if you don't want to share publicly.

Also found out more information about salary subsidy:

- apply now with TON of paperwork, if successful money will be paid around 3 months later and has to be reapplied for every month

- employer is required to pay 60-100% of salary for any days staff cannot work due to the virus situation (or any natural disaster actually)

- subsidy will cover 'up to' 60% of whatever the employer pays for maximum 100 days

Hope this helps anyone with a business here who's desperately struggling for air

[Jansen]

Do you know if the subsidy is for employees only or is it also applicable to director's fees (役員報酬) ?

[KyushuWoozy]

Do you know if the subsidy is for employees only or is it also applicable to director's fees (役員報酬) ?

Employee salary only.

[Jansen]

Well, that's going to suck for a lot of small businesses where the sole employee is the owner.

[DragonAsh]

One piece of information we haven't quite pinned down yet, and obviously it's crucial, is what specifically are the consequences in the worst situation and we default on the loan. Note: this will be a company loan and not a personal loan. If anyone has knowledge or experience I would be interested to hear it.

I'm not sure how the current round of lending will work, but up until now, even business loans have required a personal guarantor. Usually that's the owner of the company. So it's essentially a personal loan that's backed by the 'assets' of the business.

Edit: Sorry, should have read the second page, this was answered by others above.

[KyushuWoozy]

Just to update:

JFC loan is around 1.5% for first 3 years then increases to around 2.5% (I'm rounding the numbers). Max term to repay is 10 years. If you pay everything off in 3 years you get your interest payments returned so it ends up being 0%. First 18 months interest-only repayment required.

Wondering if it's only my company applying for this loan, in which case not much point me updating here. I guess anyone who needs a loan would already have applied by now anyway.

[Jansen]

I am interested in getting a loan from the JFC but for a different purpose so I am actually quite interested in hearing your experiences.

Was this the program that you borrowed from?

新型コロナウイルス感染症特別貸付
https://www.jfc.go.jp/n/finance/search/covid_19_m.html

From what I understand, you can borrow up to 300m yen. 0.9% for the first 100m, standard, whatever that is, interest for the remaining 200m. No collateral needed. Repayment period is 20 years for Capex, and 15 years for Opex.

I don't see anything about interests being waived if repaid within 3 years.