Many businesses in Israel have encountered financial difficulties due to the Corona crisis. In light of this, the Ministry of Finance has established a new track that provides loans to businesses, guaranteed by the state. These are loans with favorable and flexible terms, for which almost any business may be eligible. The state's goal in establishing this track is to assist small and medium-sized businesses in Israel, with the understanding that they are the engine of growth for the Israeli economy.
Threshold conditions
A business that meets all the threshold conditions may be eligible for a state-guaranteed loan. In general, any business with a turnover of up to 100 million NIS, which is run properly, and has no negative information about it, can receive a state-guaranteed loan. Officially, there are several conditions for eligibility:
- There are no debts to the tax authorities.
- There are no liens on the business.
- The business is not in the process of liquidation, freezing of proceedings, or receivership.
- Lack of existing loans.
- The bank accounts are in order.
- The business's annual revenue turnover does not exceed NIS 100 million.
The lending bodies
The banks that won the tender and can grant state-guaranteed loans are: Mercantile, Mizrahi Tefahot, Otzar HaHayal, the International Bank and Bank Leumi.
Restrictions on the business after granting a state-guaranteed loan
After receiving a state-guaranteed loan, the business undertakes to act in a certain manner, which will ensure that the loan funds are invested as required. The business owner must act in accordance with the business plan established when the loan was granted. In addition, the business owner is no longer allowed to withdraw capital from the company throughout the entire loan period. Furthermore, the business must allow professional entities to conduct periodic audits.
Loan routes
The process of obtaining state-guaranteed loans
The first step on the path to receiving a loan on favorable terms thanks to the state guarantee is to submit an application. It is important to submit the application in an orderly manner, be precise in all details, and attach all necessary supporting documents. In addition, a fee must be paid.
The second stage is an initial review of the application, to see if it meets the threshold conditions. If the answer is positive, an in-depth review of the application will be conducted. This review is the responsibility of the credit committee of the lending body from which you have chosen to request the loan. After the initial review, a visit to your business will also be conducted by representatives of the fund.
The final step, if the review leads to a positive recommendation, is to summarize the terms, sign the agreement, and receive the money.
What can be done if a negative answer is received?
In the event of a negative answer, the applicant has the right to refer the application to another body from the list of those bodies that provide state-guaranteed loans.
Even in the event of a positive response for an amount lower than the business requested, the request can be forwarded to one of the other lending entities. It is advisable to act quickly, so that the additional entity's response is received before the first entity's offer expires. In such a case, it is possible to choose between the two offers the one that is more appropriate for the business.
The State Guarantee Fund offers guarantees for several key loan tracks:
Working capital track
This is a loan for ongoing activities such as customers, inventory, imports and marketing. The purpose of the fund is to help finance working capital and bridge cash flow gaps. To receive approval for a loan under the working capital track, the business owner must prove credit needs by using periodic balance sheet data.
In this track, the maximum loan amount is NIS 500,000 or 8% of the annual turnover, whichever is higher.
Industrial Investment Track
An investment track loan is suitable for businesses that want to grow and expand. To be eligible for this loan, the business must present the need for investment, a table of sources, and forecasts for the day after the investment.
The maximum loan amount in this track is 90% of the required investment, or 15% of the annual turnover, whichever is lower. A loan can also be obtained for 12 years. The money can be used to purchase a productive asset, add new activities, recruit necessary personnel, and invest in research and development.
Business track under construction
To obtain a loan to start a business, the entrepreneur must prove that he has proven experience in the field and that he has a deep business understanding. It is recommended to apply for a loan through this route only if the business owner has some equity.
The track is also intended for owners and owners of existing businesses, under certain conditions. For example, an exempt business that needs a large investment to become a licensed business or a limited company. State-guaranteed loans are also provided in this track to businesses that operate from the owner's residential apartment and are about to move to a place where business activity will be conducted exclusively (as long as the cumulative income from the date the business was established is a maximum of NIS 500,000).
In any case, the maximum loan amount is NIS 500,000, and the repayment period will be 12 to 60 months.
In what cases is a personal guarantee required for a state-guaranteed loan?
The essence of state-guaranteed loans is, of course, the guarantee presented by the state for the loan, so that lending entities have a greater margin of safety than usual – a margin that translates into more favorable terms. However, there are situations in which a personal guarantee is also required, alongside the state guarantee.
In a business with an annual turnover of up to NIS 25 million, a personal guarantee is required from anyone who returns at least 5% of the shares. Businesses whose shareholders are public companies will receive the loan based on an owner guarantee, or alternatively an investment in the business of at least 50% of the relevant guarantee amount.
In non-profit organizations, the personal guarantee will be that of authorized signatories, of members who have signed another bank guarantee within the framework of the non-profit organization, of those involved in management and decision-making, and of members of the executive committee – all in accordance with the decision of the lending body.
In conclusion
Operating a business is not an easy task, requiring a lot of financial resources. Following the Corona crisis, many businesses encountered a credit problem and were unable to finance their ongoing business activities. The state is assisting these businesses in many ways, for example by providing state-guaranteed loan funds. The guarantee allows lending entities to offer favorable loan terms, such as reduced collateral and relatively low interest rates.
