🏦 In Japan, getting a business loan has long come down to one question: do you own land? For decades, banks lent against real estate and against the founder's personal guarantee — which left technology startups and asset-light firms out in the cold. A new law that took effect on May 25, 2026 is trying to change that, by letting a company pledge its entire business — brand, know-how, customer base, even future cash flow — as collateral. Here is what it means, and why bankers themselves aren't sure they are ready.

Why Japanese companies needed land to borrow money

To see why this law matters, you have to understand how a small Japanese business has traditionally raised money.

For most of the postwar era, a company that wanted a bank loan faced two questions. First: what real estate can you put up as collateral? Second: will the founder personally guarantee the debt? That second point — the "manager's guarantee" (keieisha hosho) — meant that if the company failed, the owner's house and personal savings were on the line, not just the company's assets.

The system worked well enough for an economy built on factories and land. But it has two obvious problems in 2026. A software company, a biotech startup, or a design studio may employ brilliant engineers and hold valuable patents while owning almost no physical property — so banks had little to lend against. And the personal guarantee made many founders deeply reluctant to take risks, expand boldly, or hand the business to a successor, because failure meant personal ruin.

The result is a financing gap Japan has been discussing for years. In a survey by the Financial Services Agency (FSA) conducted in January 2025, 56.2% of companies said the loan they most wanted from their main bank was one based on the substance and prospects of their business — not on collateral or guarantees.

A new kind of collateral: your whole company

The law that took effect on May 25 — the Act on the Promotion of Business-Value-Based Financing — creates a new legal tool called the "enterprise value charge" (kigyo kachi tanpoken).

The core idea is straightforward. Instead of pledging one specific building or plot of land, a company pledges its entire business as a single bundle. That bundle explicitly includes intangible assets — technology, brand strength, customer relationships, accumulated know-how — and even the cash flow the business is expected to generate in the future.

The mechanism runs through a trust. The borrowing company creates the charge under a trust contract; a licensed "enterprise value charge trust company," supervised by the FSA, holds the security on behalf of the lenders. The charge takes legal effect only once it is recorded in the commercial register. And the lender side is not limited to banks — venture capital funds and corporate-restructuring funds can use it too.

Founders will notice one feature in particular. When an enterprise value charge is in place, the lender is in principle barred from also demanding a personal guarantee from the manager. The whole point is to shift risk off the founder's shoulders and onto the business itself.

Regulators were keen enough to move the start date up. The law passed in June 2024 with a window of up to two and a half years before it had to take effect; the FSA chose to launch it sooner.

How other countries solve the same problem

Japan is not inventing this problem, and other countries have taken different routes to it.

In the United States, the dominant tool is venture debt — loans to startups that are already backed by venture capital. Lenders such as Hercules Capital and TriplePoint extend credit to fast-growing companies without hard-asset collateral, usually taking warrants (the right to buy shares later) for upside. The US venture debt market was estimated at roughly $27.8 billion in 2025. It is not cheap — all-in interest rates often land in the 10–13% range — but it lets founders raise money without surrendering large equity stakes. The 2023 collapse of Silicon Valley Bank reshaped the field, with private debt funds rushing in to fill the gap.

In Asia, South Korea and Singapore have focused specifically on intellectual property. Singapore launched an IP Financing Scheme back in 2014, with the government sharing the risk on IP-backed loans and subsidizing up to half the cost of valuing the IP. South Korea has built a deep IP-finance ecosystem — government-backed valuation systems, low-interest loan programs, even a fund that buys back IP pledged as collateral if a loan sours. China has scaled IP-pledge lending into the tens of billions of dollars.

In Europe, government-linked institutions such as the European Investment Bank and France's Bpifrance have grown more active in lending to innovative companies, and IP-backed lending is a rising theme.

Japan's new charge is broader than the IP-only model: it wraps the entire business, intangibles and all, into a single security interest — closer in spirit to an all-asset "floating charge" than to a patent-backed loan. That breadth is its strength. It may also be its biggest practical problem.

Can banks actually judge a business?

Here is the uncomfortable question at the heart of the new law: even with the legal tool in hand, do Japanese banks know how to use it?

Lending against land is simple. A bank can look up a property's market value, and if the borrower defaults, it can sell the building. Lending against "enterprise value" is the opposite of simple. The FSA itself has acknowledged that enterprise value cannot be treated as ordinary, objectively disposable collateral, because it leans heavily on assumptions about the future and can evaporate the moment a business stops operating.

What the new system really asks of banks is the development of what Japanese bankers call mekiki-ryoku — roughly, "the discerning eye." A lender has to weigh the credibility of a business plan, understand intangible assets, and then monitor the company continuously, using covenants and regular check-ins to catch trouble early. The Japan Research Institute, in a May 2026 analysis, put it bluntly: the enterprise value charge is not really valuable as "collateral" in the traditional sense at all. Its true purpose is to build an unusually close, ongoing relationship between a company and its lender.

That is hard, and it costs money. Banks would need to retrain loan officers, build specialist evaluation teams, and provide hands-on "accompaniment support" — advice on strategy, digitalization, finding customers — well beyond simply handing over cash. Yet Japan's regional banks in particular spent the long era of ultra-low interest rates cutting staff. The expertise this law assumes may not yet exist in the branches that would lean on it most. Profitability is an open question too: this style of lending is expensive to run, and it is not clear the interest and fees will cover the cost.

The fears that haven't gone away

Companies have their own reasons for caution.

The most basic is awareness. In the FSA's January 2025 survey, only 1.8% of companies said they understood the new system well, and a later survey by Teikoku Databank in the winter of 2025–26 found essentially no improvement. A tool almost nobody has heard of will not reinvent corporate finance overnight.

There is also a structural worry. Because the enterprise value charge covers a company's total assets, setting one as a first-priority charge effectively pushes every other lender to the back of the queue. In practice, that nudges a company toward depending on a single bank. In the Teikoku Databank survey, 46.0% of companies said they would rather avoid that kind of one-bank relationship as a matter of risk management. Tie yourself to one lender and you are betting it will stand by you when things get hard — and that it will not quietly tighten terms once you have nowhere else to go.

Many smaller companies, finally, simply cannot tell the story the system demands. Pledging your "future cash flow" means being able to explain it convincingly, backed by a real business plan. Only about 28.9% of Japanese companies even produce a medium-to-long-term plan.

For now, the FSA is signaling patience — stressing the quality of early deals over their quantity, and treating this as a slow cultural shift rather than a switch to be flipped. The law is in force. Whether it changes how Japan funds its businesses depends on something no statute can mandate: trust, built case by case, between a company and the bank that decides to believe in it.

What about your country?

In Japan, the default question at the loan desk was, for decades, "what land do you own?" — and a company's ideas, patents, and growth potential counted for surprisingly little. Is it different where you live? Can a startup with no buildings, and no personal guarantee from its founder, walk into a bank and borrow against its future? Tell us how lending to young companies actually works in your country.

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