In doing business in Japan we want to increase our creditworthiness and we want to be able to take out a loan easily from financial institutions. Taking this into consideration, between a subsidiary company and a branch office, which would be better?
★ Explanation ★
1. Regarding Proof of Capital
What financial institutions are most careful about when it comes to approving a loan is whether the entity applying for the loan has the ability to return the money borrowed (if loan collection is possible). Therefore, whether the loan would push through and how much is appropriate amount to be loaned will depend on the loan applicant (or in this case, the company)’s creditworthiness. Since a branch office only publishes the capital amount of its foreign office in its business registration certificate, it is not clear how much is the amount invested to the Japan branch office. Furthermore, to collect the money that was loaned, the financial institution has to coordinate with the foreign office; this means that the loan collection does not occur within Japan.
On the other hand, since a subsidiary company in Japan publishes its capital amount in its business registration certificate, the amount invested into the entity in Japan and the purpose of engaging business in Japan is clearly defined. This is one way of assuring the creditworthiness of the entity applying for the loan. In general, the loan collection can be completed within Japan.
Incidentally, regarding the two common forms of subsidiary companies (the kabushiki kaisha (joint-stock corporation) and the goudou kaisha (limited liability company)), we can say that there is little difference between the two when it comes to loan applications. However, for loan applications at city banks (major commercial banks), joint-stock corporations may relatively have more advantages.
2. Criteria and Points for Consideration
In applying for a loan, there are several factors that are taken into consideration by the financial institution. As such, there is no guarantee that the loan would be approved just because the entity applying for the loan has met certain requirements. Not only do the requirements vary among the financial institutions themselves, the current [business] environment and international situation, as well as the relationship of the individual or company with its current banking institution/s, can all influence the decisions of the financial institution in whether or not to approve the loan application.
Because of that, it is not always the case that Japan branch offices are always less likely to have loans approved by financial institutions. Provided that the financial institutions’ view is that “a foreign company’s creditworthiness is approximately equal to its branch office’s creditworthiness”, “a foreign company’s Japan branch office with good management status and a good public profile” would be viewed more favorably compared to “a Japan subsidiary company with capital but poor performance”.
In addition to that, there are also several cases of financial institutions from the foreign company’s home country expanding into Japan. For example, the Japan branch of a United States, Chinese, or Korean financial institution may be more lenient towards Japan branch offices.