State-Guaranteed Loans in Israel – The Complete Guide


The State of Israel has decided to encourage the growth of small and medium businesses and provide them State-guaranteed loans. Israel has realized that Israeli banks are not interested in giving bank loans to businesses in growth or new business run by entrepreneurs that were employees and decided to take their fate into their own hands and open a new business.

So, the state of Israel is providing collateral to banks that will allow banks to give state-guaranteed loans for business investments.

The state-guaranteed loans are given for two main purposes:

1. Loans to start a new business

Businesswise, opening a new business is very risky.

About 35% of new businesses close during the first year of operation. Israel wants to expand their employment cycle on one hand but there are not enough entities that are willing in helping these entrepreneurs from the other hand, Israel has decided to provide state-guaranteed loans to opening new businesses.

In this route, the State of Israel has established key criteria without which entrepreneurs will not receive state-guaranteed loans:

  • The entrepreneur must be experienced in the field of the new business.
  • The entrepreneurs must have maintained proper financial conduct over the years.
  • Israel provides loans to good businesses only

New businesses are checked on multiple criteria: market demand for the products or services, does the business have already customers who are interested in purchasing the products or services, whether the location of the business ensures a high level of revenue, etc.

2. State-guaranteed loans for the expansion of existing business

The state-guaranteed loans are provided for business investments such as buying equipment or machines, allow the business to meet demand from its customers, or allow working capital financing.

For example, a cash flow issue might happen when a business pays to the supplier in cash but gets paid by the customer after a long period of time and meanwhile needs to pay salaries to employees, fuel, etc.

Why is Israel willing to help small and medium-sized business owners?

In 2020 in particular, as with much of the world, Israel saw its economy in peril. They recognized that small and medium-sized businesses were really the lifeblood of its economy.

But they also saw that without help, many of these businesses might very well go out of business.

So the Israeli government decided to step in and remove some of the roadblocks to and provide loans to open business in an attempt to get the economy moving again and get the unemployment rate down.

And it’s working!

As we’ll get into more below, tens of thousands have taken advantage of this program and used this capital to revitalize their businesses or get a new one off the ground.

The end result is more people in the workforce and much lower unemployment numbers. All good things!

How easy is it to get a state-guaranteed loan in Israel?

On July, 9th, 2020 the Israeli government announced that it was increasing the State-guaranteed loans to opening new businesses program. And not only that, but they were improving the terms for the loans.

They dedicated NIS $28 billion dollars for this program initially and then raised it to NIS $50 billion.

The program is managed by an ISMEA (Israel Small & Medium Enterprises Authority) steering committee. But the Ministries of Finance and Industry and Trade are also involved in the process.

Thankfully, this proposal saw a 24% increase in loans granted to medium and small businesses across Israel.

But just how easy is it to qualify and how do you apply?

Eligibility terms for a loan are as follows:

  • The business has to employ fewer than 70 workers
  • The annual turnover must not exceed NIS $5 million
  • The requested loan amount can only serve new business activity, either establishing a new business or expanding a current one
  • It cannot be used to finance real estate purchases or construction
  • It cannot be used to purchase an existing business

Terms and details

  • The maximum loan amount for a single business is NIS $500,000.
  • The loan term is up to 5 years for buying equipment but just one year for operating expenses
  • The borrower must provide one of the following forms of collateral:
    • mortgage of the fixed assets financed by the loan
    • A personal guarantee
  • The business owner must invest at least 25% of the total loan value of their own money

How large of a loan will Israel guarantee?

The maximum loan amount that the state of Israel will guarantee is NIS $500,000.

However, since they require 25% of the total loan to be put up by the business owner also, that means if you borrow NIS $500,000, be prepared to also put up at least NIS $125,000 of your own money.

If you don’t have that on hand, you’ll have to take out a smaller loan.

So how much is NIS $500,000?

At the current currency conversion rate, NIS $500,000, which is officially called Israeli New Shekel, is the US equivalent of $152,736.35.

And the 25% portion the business owners have to put up is the US equivalent of just $38,184.

What kind of interest rates can you get on state-guaranteed loans in Israel?

State-guaranteed loans in Israel are funded at an interest rate of the prime rate plus the market interest rate.

As of the time of this writing, the Prime interest rate in Israel is only 1.60%. And the market interest rate is an incredibly low 0.1%. But of course, interest rates vary.

So at least as of right now, qualified businesses could theoretically get a loan for an interest rate of only 1.7% which is historically low and an incredible opportunity for small and medium-sized Israeli businesses.

The loan is funded through either the Bank Otzar Hachayal or FIBI.

By comparison, the government-backed loans available to US business owners start at a minimum interest rate of Prime plus 2.25% and go as high as Prime plus 4.75%.

The variations of the loan rates are based on the term length as well as the amount being borrowed.

How many business owners have taken advantage of this program?

Since its start of the program in 2020, the State Guarantee Fund for Small Businesses has given loans to over 45,000 businesses. And those loans have totaled NIS 16.3 billion ($4.8 billion US equivalent).

That’s an amazing amount of help that has been provided to small and medium-sized businesses operating (or planning to soon operate) in Israel.

Small businesses in Israel have anywhere from 5-19 employees. Medium-sized businesses in Israel have between 20-99 employees. But in talking real numbers, the averages break down like this:

  • Small business average employee number – 8.82
  • Medium business average employee number – 38.75
  • Total average number of employees per business – 15.07

So if we know that 45,000 loans have been given, as we assume that 40% of those are for new businesses, we can expect those loans to add 271,260 jobs BACK into the Israeli workforce.

That’s amazing!

What happens if a business owner can’t pay back the loan?

The loans are made offered by banks and other approved financial institutions. The government provides guarantees of 15% of total losses on the total loans made available.

However, for high-risk businesses, the government increases that guarantee up to 60%.

Luckily, though, the Israeli economy remains strong. On the Index of Economic Freedom, Israel currently has an overall score of 73.8 and ranks #26 in the world for total economic strength.

That vision and focus the Israeli government had early on in 2020 to focus on helping small and medium-sized businesses to keep their economy strong is working.

And no doubt, they will remain strong for years to come.

Final thoughts

So we covered a lot in this article.

We looked at the investment the Israeli government is making in small and medium-sized businesses in trying to boost their economy and protect it in the decades to come.

That support is coming from state-sponsored loans. These kinds of loans give these small businesses the peace of mind of knowing that they have the backing of the government as they try and get their business off the ground.

Or in the case of existing businesses, it allows them to breathing-room to expand their business despite uncertain economic times. And that growth will help support the state of Israel as it puts more people back to work and boosts the nation’s GDP.

All good things!

Jeff Campbell

Jeff Campbell is a husband, father, martial artist, budget-master, Disney-addict, musician, and recovering foodie having spent over 2 decades as a leader for Whole Foods Market. Click to learn more about me

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