Sources inform ''Globes'' that Bank Leumi (TASE: LUMI) will launch within weeks a new small business fund with at least NIS 1 billion.
Three years ago, Bank Leumi and Koret Development Funds jointly established a seven-year NIS 600 million small business fund, which mainly operates in the Galilee and Negev. The new fund will operate nationwide. Bank Leumi defines a small business as a company with up to NIS 10 million in debt and a turnover of up to NIS 20 million.
Israel has 500,000 small businesses, which the Knesset Research Department estimates accounts for 45% of the country's private sector product. 50,000 small businesses are opened annually, but most do not survive: 35,000 small businesses close each year. The main reason is a lack of financial resources for business and technological development or to compete in the market.
The banks have seen the potential of the small business sector. Last year, Bank Leumi announced that it would expand its credit to small businesses by NIS 2 billion. In practice, credit grew 8.5%, or NIS 1.7 billion, to NIS 21.7 billion in 2012. In contrast to this growth, the bank's total credit portfolio was stagnant last year, and credit to large customers shrank by 10%.
Competing for business
Bank Hapoalim (TASE: POLI) is also targeting the small business sector. In 2012, it allocated NIS 1 billion for two funds for the sector: it established the Poalim Growth; and it jointly won with Mizrahi Tefahot Bank (TASE:MZTF) a tender for a government-backed fund. Bank Hapoalim's credit to small businesses grew by NIS 1.5 billion in 2012 to NIS 24.3 billion.
Bank Hapoalim also undertook several marketing measures in the small business sector, such as Small Business Day to promote sales by small businesses; and the establishment of the Cash Bank Club, in which bank customers who make credit card purchases at particular businesses receive a discount (many of the businesses receiving the discount are small businesses).
The two banks are not alone in seeing the potential of the small business sector. Bank Leumi, in its annual report, said that competition in the sector was growing. "Most of the competition is between the big banks, but, in recent years, the smaller banks have been expanding their activity in this sector. Competition has also emerged recently from financial institutions, such as credit card and insurance companies, which are showing an interest in financing small businesses."
Loans from credit funds usually have easier conditions in terms of interest rates and collateral. For example, the Bank Leumi-Koret Funds fund grants loans of up to NIS 1.2 million at prime +1.5% interest and businesses have to provide less collateral than for regular credit.
Bank Hapoalim's fund provides loans of up to NIS 400,000 at prime + 2% interest for up to five years, and asks for little collateral. Businesses may also be eligible for 12-month grace periods.
Published by Globes [online], Israel business news - www.globes-online.com - on April 10, 2013
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