New Credit Rules May Cause Demise of 4,000 Small Firms

The introduction of the new credit limits in July may lead to the closure of some 4,000 small businesses.

According to a survey conducted by the Ministry of Trade and Industry's research department, the new restrictions that will take effect on Sunday may lead to the firing of 35,000 employees, and prejudice the employment conditions of many others.

According to the survey, the main impact of the new regulations ordered by the supervisor of banks, Yoav Lehman, will fall on those businesses that were already in trouble before the new strictures. Such companies will find it much harder to recover from their troubles than before the enactment of the new rules limiting overdrafts.

The survey was based on a representative sample of 250 small businesses and stores. The results show that 23 percent of small businesses have yet to make new credit arrangements.

The lack of arrangements is particularly prominent in the food and lodging sector, as well as among those businesses with less than 10 employees. Larger companies, those employing 25 to 50 workers, showed better levels of preparation. The major reason that the smaller firms have yet to come to an arrangement with the banks is their inferior financial situation.

In general, the overdrawing of credit limits is quite widespread in Israel. The number of small businesses that were over their credit limits even before the implementation of the new rules was 58 percent, including 21 percent that regularly overdrew their limits.

Even those companies that did come to an arrangement with the banks in the last year are still over their new limits. No less than 24 percent of small businesses have already managed to exceed their newly signed credit agreements. The average overdraft is 14 percent more than the limit.