State-guaranteed loans – an essential financing tool
State-guaranteed loans are a credit tool created by the Ministry of Finance with the aim of assisting and supporting small and medium-sized businesses. Starting a business requires motivation, an idea and a business vision, but most of all, financing. Liquid money is the lifeblood of every business. Without liquid money, no business can develop, grow and progress. State-guaranteed loans are a lifeline that allows small and medium-sized business owners to raise the credit essential for establishing or growing the business, encouraging business entrepreneurship, supporting businesses in need of credit and contributing to the growth of the Israeli economy.
Unlike other loans in which the business owner guarantees the repayment of the loan, in these loans the state guarantees the loan for most of the loan amount, about seventy-five percent of the loan amount, and the business owner personally guarantees only the rest of the amount. The state guarantee reduces the risk for the banks and makes the loan worthwhile for them as well.
State-guaranteed loans help business owners obtain financing that they might not have been able to obtain through other means and on particularly favorable terms. The loans are provided through commercial banks that have won the tender, the bank is the one that grants the state-guaranteed loan, and the loan repayments are handled with the bank as with any other bank loan.
The loans are granted up to a maximum amount of one million and one hundred thousand shekels, they are granted for a period of five years, at interest rates lower than other bank loans, and there is the option of postponing principal payments for a period of six months from the date of receipt of the loan. In addition, there are smaller tracks for loans up to one hundred thousand shekels.
State-guaranteed loans – three loan tracks
The business establishment track is a track designed for entrepreneurs seeking to obtain a loan to establish a business.
The investment track is a track designed for small to medium-sized businesses that require a loan to invest in and develop an existing business.
A working capital track is a track designed for businesses that require a loan to assist with cash flow. The need for cash flow arises from a number of reasons such as low cash flow, declines in business revenue, or the need for financing to increase revenue.
Who should and who can get a state-guaranteed loan?
Any business in any field can apply for a loan . Business owners in the fields of commerce, industry, construction, tourism, lawyers seeking to expand their office, a medical beautician who wants to open a treatment center, for example, people seeking to open a store, invest in a franchise network, those who want to purchase equipment for a business, and more, as well as associations operating in business activities, are all eligible to receive a loan from the State-Guaranteed Loan Fund.
To qualify for a loan, the applicant must meet the terms and requirements of the funds providing the loans, must be registered as an exempt trader, a licensed trader or in a limited company. He must present documents proving that he does not owe money to the tax authorities, his bank accounts are not seized, he has no cases under execution and he is not in legal proceedings due to financial debts.
Who and why should you take out state-guaranteed loans?
State-guaranteed loans are non-bank financing that does not affect the bank credit framework . The loan allows the business owner to raise a loan in situations where they can no longer benefit from bank credit.
A state-guaranteed loan is preferable to the financing solution of discounting checks . Many business owners pledge future checks to the bank in exchange for receiving cash, paying expensive interest and severely damaging the cash flow and income of the business. A state-guaranteed bank loan on favorable terms will put the business in a positive cash position and eliminate the need for discounting checks.
Business owners need financing for inventory purchase expenses . Instead of raising bridge loans or a high-interest loan from the bank to purchase inventory for the business, the business owner can raise cash through the loan without burdening the business’s ongoing cash flow.
When a business owner needs to buy a vehicle for their business or replace an old vehicle with a new one, they turn to loans specifically designed for vehicle financing. Through state-guaranteed loans, the business owner will be able to obtain a loan on better terms and save a lot of money on interest payments.
Many businesses operate in a negative bank balance and pay high interest rates . Taking out a loan to cover the negative balance will allow the business owner to replace the high interest rate of the credit line with the lower interest rate of the state-guaranteed loans.
How can you get a loan?
A business owner who wishes to receive a state-guaranteed loan is required to undergo examination procedures on behalf of the Ministry of Industry, Trade and Tourism franchisees, the companies Tavor and BD, which are called the coordinating body, and the lending bank, which are the bodies that approve eligibility for the loan.
To receive the loan, you must fill out a questionnaire, which is available on the Tavor company’s website, pay a fee, and send the application, along with a receipt for payment of the fee, to one of the companies in the coordinating body.
The business owner must submit a business plan that is reviewed by the coordinating body and prove that he meets the criteria, as detailed above, that entitle him to receive the loan. If the borrower has any doubts about his eligibility to receive the loan, he can contact one of the companies in the coordinating body and speak with one of the economists in the body. Eligibility may be disqualified in cases where the applicant is a limited customer or for some other reason, but most businesses should not encounter difficulty in receiving the loan.
The loan processing time is up to ten business days , but most times it takes less time.
Sometimes the business owner will receive the entire loan amount at once, and sometimes the loan will be divided into two stages, with the second stage being conditional on a certain progress as stipulated in the contract between the bank and the borrower.
If the coordinating body recommends approval of the loan , the application will be forwarded to the lending bank, which will conduct a review of all business data in coordination with the bank’s credit committee, representatives from the coordinating body, and the state.
summary
In conclusion , state-guaranteed loans provide a convenient lending channel for small and medium-sized businesses and encourage growth in the economy. Bank data shows that the total credit provided to business owners through the State-Guaranteed Loan Fund is increasing every year, and more business owners are using the state guarantee to raise loans on favorable terms.
The benefits of state-guaranteed loans
- Lower interest rates than regular bank loans.
- A state guarantee that reduces the risk for banks.
- Possibility to postpone principal payments.
- Different routes that suit different business needs.
The process of obtaining a loan
- Filling out a questionnaire on the coordinating body’s website.
- Payment of fee.
- Submit a business plan.
- Waiting for a recommendation from the coordinating body.
- Inspection by the lending bank.
When should you apply for state-guaranteed loans?
Applying for state-guaranteed loans is recommended when:
- Financing is needed to start a new business.
- Financing is needed for investments in an existing business.
- Funding is needed for ongoing expenses and cash flow.
Summary of benefits
State-guaranteed loans offer a flexible and convenient financing solution for small and medium-sized businesses, with low interest rates and favorable terms, allowing business owners to focus on business growth and development.
In conclusion
State-guaranteed loans are an important tool for any business owner looking to start or develop their business. With favorable terms and a state guarantee, they are a cost-effective option that helps many businesses succeed.
The challenges and opportunities in state-guaranteed loans
Despite the many benefits of state-guaranteed loans, there are also challenges that are important to be aware of. These challenges include:
- Application process: The process of obtaining a loan can be complex and requires advance preparation of documents and a business plan.
- Prerequisites: Not every business can meet the conditions required to receive the loan, so a thorough examination must be performed before submitting the application.
- Competition for loans: Sometimes there is a lot of competition for loans, which can make it difficult to obtain a loan.
Opportunities for growth
State-guaranteed loans offer many opportunities for growth for businesses:
- Expanding operations: Businesses can use loans to expand their operations, enter new markets, or develop new products.
- Improving cash flow: Loans can improve a business’s cash flow, allowing it to operate more smoothly.
- Investment opportunities: Businesses can utilize the loans to invest in new equipment, advanced technologies, or business process judgment.
summary
Government-guaranteed loans are an important financing tool that can help small and medium-sized businesses overcome economic challenges and seize opportunities for growth. However, it is important to be aware of the process and requirements to ensure that the loan is granted and serves the business in the best possible way.
