Overdraft reform could force closure of 4,000 small businesses

The closure of the small businesses would leave 35,000 people unemployed.

By SHARON WROBEL
June 30, 2006 10:42
1 minute read.
Shopt gone bankrupt

bankruptcy 298 88. (photo credit: Ariel Jerozolimski [file])

 
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As the new overdraft directive comes into effect Sunday, the Ministry of Industry, Trade and Labor warned that 4,000 small businesses were expected to face closure. About 70 percent of those are businesses that did not personally arrange their credit frameworks as requested by the directive because of the financial difficulties they were undergoing. The closure of the small businesses would leave 35,000 people unemployed. "Many small businesses don't know or find it hard to deal with banks so when the banks arrange their credit frameworks, they believe everything is in order and they don't need to personally go into their bank branch," Nir Kantor, director of the Small and Medium Businesses Committee at the Manufacturers Association of Israel told The Jerusalem Post. Then ministry said that although part of the businesses in question were already at risk of facing closures because of economic difficulties, their chances of rehabilitation have been eroded by the implementation of the directive. "I have no doubt that the overdraft directive will threaten the survival of small businesses," Kantor said. "It will have a domino effect, it will be enough for one business to have credit difficulties, which in turn will have an effect on their suppliers and so on." The assessment on the repercussions of the directive was based on a survey of 250 small businesses employing a maximum of 50 people. The survey was conducted by the Economics and Research Department of the Ministry of Industry, Trade and Labor three weeks ago. According to the survey 23% of small businesses had not yet arranged their credit frameworks, mostly those in the hospitality and food business. About 30% of small businesses, which arranged their credit framework widened their previous framework, while 9% narrowed their framework but the majority, 61%, did not change the height of their credit framework. Furthermore, the survey revealed that about 24% of the small businesses that have arranged new frameworks are not staying within the boundaries of those arrangements.

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