Why the CEO who refinanced everything to a bank because 'Shinkin banks have high interest rates' cries on rainy days—Banks and Shinkin banks are 'different creatures.' How to …

Hello. I am Haruka Koshimizu, an attorney.

“Aren’t banks and Shinkin banks both just ‘banks’?”

Actually, there are many CEOs who think that way. The atmosphere at the counters is similar, and both lend money. However, please discard that way of thinking immediately.

Banks and Shinkin banks are completely different things, from the laws they are based on to the purposes for which they exist. If you don’t understand this difference, you will struggle with cash flow later. As an attorney, I have heard many stories of people who ‘switched to a single megabank and regretted it immensely.’

I explained this on my YouTube channel, ‘Defensive Management Ch.’

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In this article, I will organize and share the content of that video.

One in four Japanese companies uses a Shinkin bank as their main bank

First, please keep one figure in mind.

In the 2025 ‘Main Bank’ trend survey conducted by Teikoku Databank based on data from approximately 1.5 million companies, regional banks ranked first with a 39.76% share of main banks. Shinkin banks were second at 23.38%, and megabanks were third at 18.47%.

I think many of you thought, ‘Isn’t Mitsubishi UFJ Bank number one?’ It is true that Mitsubishi UFJ Bank is the top individual bank, but when looking at business categories, regional banks account for about 40%, and there are more Shinkin banks than megabanks. Nearly one in four Japanese companies uses a Shinkin bank as their main bank.

Moreover, in this survey, among the approximately 4,000 companies that changed their main bank from a regional bank, the largest group—1,728 companies (44.55%)—switched to a Shinkin bank. The feeling that ‘the bigger the bank, the safer it is’ is out of sync with the actual choices made by business owners.

Banks are ‘for shareholders,’ Shinkin banks are ‘for members’

The law applied to banks is the ‘Banking Act.’ The law applied to Shinkin banks is the ‘Shinkin Bank Act.’ It sounds straightforward, but they are truly different laws.

In a word, the difference is ‘who they exist for.’

Banks are joint-stock corporations. They are legal entities that receive investment from shareholders and conduct profit-making activities for the benefit of those shareholders. Therefore, for a bank, lending is ultimately a ‘product for generating profit.’

On the other hand, Shinkin banks are not joint-stock corporations. They are non-profit cooperative organizations created by members pooling their money. The Shinkin Bank Act states that its purpose is to ‘facilitate finance for the general public and contribute to the enhancement of their savings.’ The areas where they can operate are also limited to specific regions, and the system is designed to return the money collected in that region to the members of that region.

What is important here is the ‘member.’ Article 10 of the Shinkin Bank Act determines the size of businesses that can become members. They must be businesses with 300 or fewer employees or a capital of 900 million yen or less, and the person must have an address or place of business in the Shinkin bank’s operating area. In other words, Shinkin banks are legally determined from the start to be ‘financial institutions for small and medium-sized enterprises and local residents.’

When a company grows and exceeds 300 employees or 900 million yen in capital, it loses its membership eligibility. This is a ‘graduation’—you have grown up well, so please move on. Conversely, for small companies, a Shinkin bank is a financial institution created for their own sake.

To summarize crudely, banks are ‘for making money,’ and Shinkin banks are ‘for helping each other.’ This difference in the starting point leads to all the advantages and disadvantages I will talk about from here on.

The advantages of banks are ‘large-scale, low-interest, and wide-area’ coverage

There are three advantages to banks.

1. They can provide large-scale financing. Funding for capital investments or M&A worth hundreds of millions or billions of yen is the specialty of megabanks and regional banks.

2. Interest rates are relatively low.

3. They have a wide service area. Since they have branches nationwide, you can continue doing business with the same bank even if you expand your operations outside the prefecture or overseas.

How much do interest rates differ? According to the ‘Average Contracted Interest Rates on Loans’ statistics released monthly by the Bank of Japan, the average interest rate for new loans in September 2025 was 1.549% for city banks, 1.390% for regional banks, and 1.442% for second-tier regional banks. In contrast, credit unions were at 1.873%. Even in the latest data for August 2026, while regional banks were at 1.731% and city banks at 1.882%, credit unions were at 2.254%.

Although it fluctuates from month to month, credit unions tend to be about 0.3 to 0.5 percentage points higher. You might think, ‘Aren’t banks that are out to make a profit the ones with higher interest rates?’ but it is actually the opposite.

The advantage of credit unions is ‘everything other than interest rates’

So, what is the advantage of a credit union? To put it very bluntly, it is ‘everything other than interest rates.’

1. They are attentive even to small companies. A newly founded company with just the CEO and a few employees—bank headquarters rarely pay attention to such companies. But credit unions are organizations that exist for those very companies. The staff often visit the company in person to judge based on the CEO’s character and the actual workplace.

2. They have a stance of providing relief. When business performance deteriorates, they will think together with you about ‘how to turn things around.’

3. There are fewer disadvantageous sales pitches. Since they have no shareholders, they do not have the mindset of piling up quotas for shareholders. The risk of being pushed into unnecessary financial products is lower compared to banks.

Among my clients, there was a company that was completely ignored by banks in its third year of business. They desperately needed working capital, so they borrowed from a local credit union, got on track from there, and now they even do business with megabanks. The first step for a small company is the hardest, but I have seen many cases where credit unions helped.

The disadvantage of banks is that they are ‘cold on rainy days’

Of course, both have their disadvantages.

To put it clearly, the disadvantage of banks is that they are very cold when business performance worsens.

Banks must generate profits for their shareholders. When the performance of a borrower deteriorates and it looks like ‘the money might not be paid back,’ their judgment becomes very mechanical. If they judge based on emotion, saying ‘this CEO is a good person, so it will be fine,’ the shareholders will get angry. That is why additional financing stops, they demand additional collateral or guarantors, and in the worst case, they force repayment.

The old saying, ‘They lend you an umbrella on a sunny day and take it away on a rainy day,’ refers exactly to this. Given the structure of a joint-stock company, it is also unavoidable.

Another thing is sales pitches. Foreign exchange derivatives, interest rate options, investment trusts, insurance. Since the staff have quotas, they may recommend products in a way that is bundled with loans. In particular, regarding foreign exchange derivatives, many small and medium-sized enterprises have suffered unexpected losses in the past, and the bank’s duty of explanation has been disputed in court.

‘It’s hard to refuse because I’m receiving a loan.’ That psychology, combined with the bank’s sales quotas, leads to CEOs buying products they don’t actually need.

You don’t have to buy them; you don’t need things like that. But many CEOs are not good at refusing. I am not good at refusing either.

In such cases, please try saying this: ‘I need to consult with our corporate tax accountant or legal counsel about these kinds of financial matters; I’ll get in trouble if I do it on my own.’ If the representative still pushes, the problem lies with that representative. Using them as a ‘shield’ to decline things you don’t want to do is one of the roles of a legal advisor.

The disadvantages of Shinkin banks are ‘large-scale loans’ and ‘interest rates’

There are two disadvantages to Shinkin banks.

First, they cannot handle large-scale loans. Since their business areas and member sizes are limited by law, when it comes to large investments in the hundreds of millions of yen, Shinkin banks often cannot handle it alone and require cooperative financing with banks.

Second, interest rates are relatively high. When the total borrowing reaches several hundred million yen, an interest rate difference of 0.3 to 0.5 percentage points results in a difference of several million yen per year. That is enough money to hire one person, so it cannot be ignored.

In other words, both have their pros and cons. There is no correct answer that says, ‘You must choose this one.’ That is precisely why what matters is not ‘which one’ but ‘how to use them differently.’

Four points for maintaining good relationships with both

1. Align with your company’s stage. From the startup phase up to annual sales of several hundred million yen, it is standard to make a Shinkin bank your main financial institution. If you insist on using a bank at this scale, they will rarely take you seriously, and even if you can borrow, the terms will not be good. Once your annual sales exceed several hundred million yen and you need significant capital, move to regional banks, and then to megabanks. The idea is to ‘add’ financial institutions as you interact with them in line with your company’s growth.

2. Polish your financial statements. It goes without saying, but both banks and Shinkin banks ultimately make decisions based on financial statements. Banks, in particular, focus on head office reviews, so you could say the numbers in your financial statements are everything. Prepare trial balance sheets every month, do not leave executive loans or unexplained suspense payments, and never engage in window dressing. This accumulation of the basics leads to an evaluation as a ‘company that can be safely lent to.’

3. Report progress regularly. This is the most effective method. Most CEOs only go to financial institutions when they want to borrow money. However, excellent managers send trial balance sheets to their representatives even when they have no plans to borrow, reporting, ‘This is the current situation.’ This creates the impression that ‘that company is transparent with its information,’ and it speeds up the review process when the time comes. Someone who contacts them after five years versus someone who spoke to them last week—financial institutions also feel a different level of warmth when asked to ‘lend money.’

4. Do not cut ties with Shinkin banks even if interest rates are high. When a company grows and can deal with banks, many CEOs think, ‘Shinkin bank interest rates are high, let’s switch everything to a bank.’ On a sunny day, that is rational. But on a rainy day when business performance deteriorates and the bank pulls back quickly, it is the Shinkin bank that will support you. They are not superheroes who will suddenly come to the rescue if you have cut ties once. The relationship has to start from zero. Think of the interest rate difference as an ‘insurance premium’ and keep some of your borrowing with the Shinkin bank. As a practical strategy, this is highly recommended.

Finally—prepare two umbrellas on a sunny day

Let’s summarize today’s points.

1. Banks are for-profit corporations for shareholders, while Shinkin banks are cooperative organizations for members. They are different even from a legal standpoint.

2. Banks have strengths in large-scale loans, low interest rates, and wide coverage, but their weakness is being cold on rainy days. Shinkin banks have strengths in being attentive and having a stance of providing relief, while their weakness is large-scale loans and interest rates.

3. ‘Add’ financial institutions in line with your company’s stage. Polish your financial statements, report even when you are not borrowing, and do not cut ties with Shinkin banks even if interest rates are high.

Adding one more thing from a lawyer’s perspective, even in contracts with financial institutions, always check the contents of the contract and guarantees. The necessity of management guarantees, conditions for losing the benefit of time, and the scope of collateral. Just because it is a document provided by a financial institution does not mean it is safe. The contents of a loan agreement will bind your cash flow for years after it is signed.

When a company runs into cash flow trouble and comes to a lawyer, the issues that always come up are negotiations with banks, rescheduling of repayments, and management guarantee problems. And the most common regret is the case where ‘there was only one financial institution to deal with.’ The moment the main bank pulls back, you run out of options. Conversely, companies that have long dealt with both Shinkin banks and commercial banks often find that even if one becomes strict, the other supports them, buying time for reconstruction.

Prepare two umbrellas on a sunny day. That is all there is to it.

We are a group of lawyers specializing in corporate legal affairs. From checking loan agreements and management guarantees to negotiating with financial institutions and initial responses when cash flow becomes tight, we support the ‘defense’ of management every month as part of our advisory contract. If you are anxious about how to deal with financial institutions, please consult with us while it is still a sunny day.

For more details, please watch the full video.

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