Treasury enlarges special loan fund

Small businesses hit by economic slowdown may soon benefit from state guaranteed loans.

small business 88 248 (photo credit: Ariel Jerozolimski)
small business 88 248
(photo credit: Ariel Jerozolimski)
The Finance Ministry is planning to increase the government's loan guarantee fund to NIS 240 million in an effort to encourage banks to lend to small businesses, which are struggling to survive amid the global credit crisis and an economic slowdown. "In particular now during difficult times it is of utmost importance to assist small companies and businesses by increasing the availability of credit sources to this segment," said Shuky Oren, the Finance Ministry's accountant-general. "Today, the fund offers NIS 200 million of available credit to small businesses and we estimate that the amount will grow to a quarter of a billion shekels." As part of its economic stimulus package, the government will contribute another NIS 40m. to the fund and the banks will raise the amount to NIS 240m., out of which 70 percent is state-guaranteed. Oren has asked the banks for proposals on the borrower participation-guarantee requirement, which will be less than the 30% demanded until now. Furthermore, small businesses will be granted a payback grace period of six months. The fund will make NIS 60m. available for loans to small businesses in Sderot and the Gaza periphery with special conditions. They will only need to provide a reduced guarantee of 10% and have a payback grace period of up to a year. The small business loan fund was established in 2003 by the Treasury and the Industry, Trade and Labor Ministry to aid the establishment and expansion of small businesses in all sectors of the economy. Within this framework, the government guarantees bank loans, to encourage banks to lend to small businesses despite insufficient collateral. Rather than collateral, the banks require a detailed business plan along with the application for credit. The fund currently disburses money through three banks: Bank Otsar Hahayal, Israel Discount Bank and Mercantile Discount Bank. "The fund has been successful and proven itself in assistance to small businesses. Over the past years, the fund guaranteed 3,000 loans to a variety of businesses across the country for a total value of over NIS 923m.," Oren said. On Tuesday, Finance Minister Ronnie Bar-On criticized the banks for failing to lend. "Once the cabinet approves the economic stimulus plan, the banks will be out of excuses not to lend money. The plan will secure lending to corporate Israel," Bar-On said at a conference in Tel Aviv on Tuesday. "The government will not allow the banks to exploit the crisis situation and damage the nonbanking sector and the ability of the economy to grow." Although the Bank of Israel has continually cut its base lending rate over recent weeks, to a historic low of 2.5%, businesses are not getting cheap credit at banks.