In Israel, small businesses can raise loans from a wide range of different financing sources such as: banking institutions, non-bank finance companies and also the Small Business Fund. Most of the credit granted to small businesses is generated from state guarantee loans, and different data also indicate that the total amount of credit granted through the Small Business Fund is increasing every year and more businesses are using the state guarantee to raise loans on more favorable terms.
State guarantee loans create a convenient loan channel for small and medium businesses in Israel and generate growth in the economy.
A State guarantee loan is a long-term bank loan like any other loan and is taken from the various banks that work in cooperation with the fund (Hapoalim, Mizrahi, Mercantile Discount and more). The bank is the one that grants the loan to the business and the repayments of the loans are handled by the bank, the business must meet the repayments as stipulated in the repayment schedule like any other bank loan for business.
The difference between bank loans and state-guaranteed loans is that on state-guaranteed loans in Israel, the bank receives a guarantee from the state on a major portion of the loan amount granted by the bank to a particular business. This bank loan is granted to the business so that the bank receives between 75% to 90% of the loan in state guarantee and the other collateral is provided by the business. The collateral of the business is material collateral, in other words cash, and so in terms of collateral the business has no risk. Of course, the banks are obliged to provide state-guaranteed loans with a 5-year spread and are obligated that the interest rate of the loan granted should not exceed the prime interest rate + 3.5%.
In summary, state guarantee loans are loans designed to allow Small businesses receive large loans from the bank when the state guarantees most of the loan amount, thereby reducing bank loans granted to businesses. Basically, a business undergoes an examination on behalf of the state and the accompanying bank and obtains approval of a state guarantee loan if it is deemed appropriate at the end of the process.
First, a small or medium business needs to check its eligibility to raise a state guarantee loan. State guarantee loans in Israel are only granted to small and medium-sized businesses that pass the fund’s conditions. The conditions aim to filter out businesses that have no chance of getting a loan in the beginning of the process. Any business that is considered a small or medium business and has no debt to tax authorities or banks can apply for a state guarantee loan. It is important to know the threshold conditions for state guarantee loans in Israel and if you can consult an experienced business consulting firm who can ascertain eligibility for the business.
Fundraising loans in Israel require a positive recommendation from the fund’s coordinating body. The business submits a business plan in accordance with the fund’s requirements, and the state coordinating body examines the business application and gives it a positive or negative recommendation accordingly.
Many business owners find it difficult to obtain a loan from the bank, and the bank – despite its desire to grant loans – has difficulty to accede due to a high level of risk in repaying the loan. Banks prefer to grant loans through a state guarantee because it allows them to lend to businesses That are considered as high risk for a usual bank loan. With a state commitment to cover the debt if the business cannot repay the loan they have no problem giving loans to more businesses. Thus, banks increase their total credit through state-guaranteed loans in Israel. During 2012-2013, Israeli banks granted state-guaranteed loans to approximately six thousand small businesses:Bank Hapoalim granted nearly two thousand state guarantee loans, Otsar Hahayal Bank granted 1,318 state guarantee loans and Mizrahi Bank and Mercantile Bank granted around a thousand state guarantee loans each.
State guarantee loans are a steppingstone for small and medium business owners which allows them to expand their business or make investments. State guarantee loans in Israel were created with the sole purpose of helping small and medium businesses in Israel raise business credit, which is exactly what state guarantee loans in Israel do. Thanks to state guarantee loans in Israel, there is more business credit granted to businesses, which one can assume would not have received this credit directly from the bank at all.
In addition, more credit means more growth in the economy, because more businesses have disposable income to invest back in their business and other businesses, such as their suppliers. State guarantee produces an increase in total credit in the economy and thus produces growth in the economy. State guarantee loans in Israel help businesses from all over the country and continue to be the most convenient and low risk business credit solution.