Report on a fact-finding survey of the credit-decision system and loan pricing in small business financing in Japan

In this paper, we report the findings from an interview survey on the system and process of lending decisions and loan pricing, as well as the information that is used in such processes. The survey targeted 19 regional financial institutions, including regional banks and cooperative institutions in Japan. We found that soft information is used in lending decisions but is rarely used directly in loan pricing, and found that each branch exercises greater discretion in loan pricing. Soft information affects loan pricing indirectly through each bank's internal credit rating process. Loan officers at a bank usually revise the financial statements submitted by client firms using soft information in order to more accurately reflect the actual conditions