What is a small business?
In practice, there is no universal, unequivocal and agreed definition to the question “What is a small business? Criteria vary from country to country and from era to era. The binding definition in force in Israel was set by the government on August 12, 2007, when it defined the following criteria for the state giving incentives, benefits or loans to businessman:
Very small business - up to 5 employees with a turnover of up to NIS 1 million.
Small business - up to 15 employees with a turnover of up to NIS 50 million.
Medium business - up to 100 employees with a turnover of up to NIS 100 million.
In other words, any business with less than 50 employees whose annual turnover is below NIS 50 million, may, in principle, request a loan for developing or expanding a “small business”.
How many small businesses are there in Israel?
According to Small- and Medium-size Business Authority data, it appears that there are 400,000 small businesses in Israel that employ more than 50% of Israel’s workforce constituting about 96% of all businesses in Israel.
Is it only the state that gives loans to small businesses on preferential terms?
Apart from the Ministry of Trade and Industry’s Small- and Medium-size Business Authority, which is the body that coordinates all state assistance to small businesses, there are dozens of non-profit organizations in Israel, both public and private, that operate funds granting thousands of loans annually on preferential terms to small businesses of all kinds.
Are new immigrants interested in opening a business also allowed to apply to one of these funds?
Most definitely yes, even though it is recommended initially to apply to those funds solely dedicated to immigrant entrepreneurs, such as those of the Ministry of Immigrant Absorption and the Jewish Agency (e.g. the New York Fund) where the chance of a positive response is greater.
How large is the loan and for how many years?
Depending on the fund and the loan type, between NIS 20,000-500,000, which is the maximum granted by the fund for loans with state guarantees from the Ministry of Trade and Industry. Most of the loans approved for immigrant entrepreneurs range between NIS 40,000-100,000. Most loans are for 5 years.
At what interest rate?
In most cases, the loan is linked and at a rate of Prime + 1% - 2% which is significantly lower than the market price. There are also several funds that grant interest-free linked loans.
Must any equity capital be invested as a condition for receiving the loan?
In most cases, yes. Equity capital ranges between 5%-15% of the total investment required for setting up or expanding a business.
Are guarantors required?
In most cases, the fund requires the signature of two guarantors as a condition for receiving the loan.
Is it possible to receive a loan without submitting a business plan?
Definitely not. Every fund, without exception, requires the submission of a business plan prepared by a qualified and recognized authority as a vital condition for considering a loan application and its approval.
Who is considered by the fund to be a recognized authority for preparing a business plan?
In most cases, any one of the MATI Centers located around the country. There are also funds whose business includes the production of a business plan either themselves or by experts on their behalf.
How long does the loan approval process take?
Between 1-2 months on average. What can speed up the process is the accurate and swift collection of all the data and documents required for preparing the business plan by the borrower.