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As part of the government's program for jump-starting the economy, the treasury has announced the creation of a NIS 1.3 billion loan fund for medium-sized businesses.

The loans will be available to businesses with annual sales of NIS 22 million-NIS 100 million that are judged to have the potential to grow and to provide additional jobs.

The loan will be for a maximum of 8% of the business's annual sales turnover and must be repayed within five years. A one-year grace period will be extended, during which the debtor can choose to pay off the interest only, postponing repayment on the principal.

Three different types of loans will be offered: index-linked, non-linked and linked to the dollar or the euro. Mercantile-Discount Bank, Bank Otsar Hahayal and Bank Hapoalim will jointly operate the fund.

Early last week the treasury chose Mercantile-Discount, Otsar Hahayal and the First International Bank of Israel to operate a similar, NIS 440 million loan fund for small businesses. Treasury officials believe that competition among banks for the loans will result in relatively attractive terms for business owners.

The aim of both funds is to ease the credit crunch in the economy. Treasury officials believe the creation of the two funds will encourage other banks to open up their coffers to businesses as well.

"The fact that the operation of the fund for medium-sized businesses will be split among one large bank and two medium-sized ones will result in improved services to businesses and increase the competition for business credit between the banks that won the tender and those that did not," Finance Ministry Accountant General Shuki Oren said.