Japan’s Covid-19 Subsidy and Relief Programs for SMEs
This article has been written as a collaboration between Miho Tanaka of Startup Japan and the team at Langley Esquire
SNA (Tokyo) — Covid-19 has thrown the global economy into disarray. People have been forced to stay home, and businesses to stay closed, with little idea of when normal activity will resume. The government of Japan, in order to mitigate the virus’ impact on the economy, has proposed multiple measures to help workers and small and medium enterprises (SMEs). The following is a review of some of the primary initiatives and opportunities.
Grants: The Ministry of Health, Labour and Welfare (MHLW) will provide grants to companies that meet designated criteria. The goals are to increase the ratio of regular employees and avoid a surge in unemployment. There are three grants directly related to Covid-19: grants for employers offering time off; grants for improving the employment environment; and grants for teleworking.
The grant for employers offering time off provides up to ¥8,330 (US$80) per day for each employee taking paid leave. Applicants must have employees taking leave. The application process has already started, and will end on June 30. Employers, not employees, apply for this grant.
The grant for improving the employment environment offers companies a one-time handout of ¥100,000 (US$940). To qualify as an SME in manufacturing and services, wholesale, and other industries, companies must have capital of less than ¥50 million (US$470,000), ¥100 million (US$940,000), and ¥300 million (US$2.8 million), respectively. The application period for this grant also ends on June 30.
Additionally, MHLW will also provide a grant of up to ¥1 million (US$9,400) for firms that promote teleworking that will cover 50% of total implementation costs. The ministry will accept applications until May 29.
Loans: The government will also facilitate interest-bearing loans to companies hit by Covid-19 to help with cash flow. Two entities will be involved: Japan Federation of Credit Guarantee Corporations (JFG), which guarantees loans, and the Japan Finance Corporation (JFC), which can directly provide them. Applicants must have suffered a decline in sales of at least 5% in the last three months. Companies that have experienced a sales drop of 20% or more are eligible for full support.
Loans by public financial institutions can be used to cover expenses of long-term investments, the installation of equipment and software, and in some cases, deposits and working capital. Generally, a JFG loan comes with the following criteria: for an 80% financing guarantee, sales for the most recent three months must have decreased by more than 5%, measured from the same period in 2019 where possible; for a 100% financing guarantee, sales for the most recent two months must have fallen by 20% or more. Businesses must have been in operation for over a year, and the most recent sales month must have fallen 20% or more from the same month in 2019. Companies with April and May estimates of a 20% sales drop from 2019 can also apply.
The Tokyo Metropolitan Government will also offer loans of up to a ¥1 million (US$9,400) to cover employees’ salaries at SMEs. They will have a five year repayment period, but will be restricted to firms with company addresses in Tokyo, and for employees making less than ¥8 million (US$75,000) per year.
Subsidies: The Ministry of Economy, Trade and Industry (METI) and other governmental organizations will provide multiple subsidies to SMEs. These subsidies were designed before the virus outbreak, but they are still functioning and available to SMEs: subsidy for entrepreneurs operating a business for less than five years and the Monozukuri Subsidy.
The subsidy for entrepreneurs operating a business for less than five years is for entrepreneurs starting their own business as sole-proprietors and startups. It covers up to ¥3 million (US$28,000) worth of costs like office rent, equipment, payroll, and advertising. The application process is open twice a year and a financial sheet for the next three years is necessary to apply. The company is required to provide details on how the subsidy can cover up to two-thirds of its total costs. SMEs in Tokyo can apply through the Tokyo Metropolitan Government, while other municipalities offer separate applications.
The Monozukuri Subsidy targets system developers and manufactures who want to create a new service, system, or product. Companies must have an initial equipment investment of at least ¥500,000 (US$4,700). Companies from different sectors face different criteria in applying for this subsidy, but it covers about half of SMEs’ costs and two-thirds of small business costs in developing their new service. The government offers between ¥1 and ¥10 million (US$94,000) through this framework. A business plan for the next three to five years is also necessary to apply, along with further criteria. While the first application window for the Monozukuri Subsidy ended on April 21, there will likely be up to five more application periods during the fiscal year that ends next March.
These are only two of the government subsidies for SMEs struggling under the pressures of the Covid-19 pandemic. Among other widely-used METI subsidies, there is also a subsidy to install IT systems and another one directed at small business owners. Prefectures and local municipalities also offer their own subsidy programs.
Cash benefits: The government also plans to extend cash benefits to SMEs and sole proprietors who have suffered a significant drop in income of up to ¥2 million (US$18,800) and ¥1 million (US$9,400) respectively.
SMEs and individuals having difficulty paying their pension and public health insurances can also defer social insurance payments. To benefit from deferment, an application must be submitted after the payment deadline to the relevant governing body (e.g., Japan Pension Service). They will be included in the supplemental budget to curb the economic effects of Covid-19.
Through its recently enacted record stimulus package, the government will provide an employment adjustment grant of up to 90% for SMEs to avoid firing employees, whether they are full-time or part-time. Even if an SME needs to lay off some employees, the government is planning to support 80% of the employee’s wages as long as the state of emergency lasts. For small enterprises, the government will secure 100% of employees’ wages.
The government will also provide zero- and low-interest loan programs through private financial institutions. The Bank of Japan will ensure that financial institutions and banks lend money to companies hit by the outbreak. SMEs asked to close while the state of emergency lasts will also receive compensation in some prefectures. Additionally, the government will inject capital into SMEs essential to local and regional economies that have suffered severe financial strains, such that loans are not enough to keep them afloat.
About Miho Tanaka
Miho’s mission is to support foreign entrepreneurs starting businesses in Japan. She can interpret, translate and complete documents for clients to submit loan applications to the Japan Finance Corporation (JFC).
About Langley Esquire
Langley Esquire is Tokyo’s premier public affairs consultancy dedicated to resolving issues in Japan’s unique regulatory environment. We overcome unprecedented challenges at the nexus of government, business, and society. With over thirty years of experience, we pride ourselves on our vast networks and ability to generate results for organizations of all sizes.
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