Half of Israeli Firms Fail Within Five Years, Says OECD Report

Small business pay higher interest rates, put up more collateral - and 12% of them don't even make it past 12 months.

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A small shopping center in Sderot, December 2012. More than 10% of small businesses fail within a year.
A small shopping center in Sderot, December 2012. More than 10% of small businesses fail within a year.Credit: Moti Milrod

Half of Israel’s businesses won’t survive for a full five years, according to a new Organisation for Economic Co-operation and Development report. Small businesses pay twice the interest rates that large businesses pay, and although interest rates may be at a record low right now, that’s not trickling down to small businesses, the report warned.

Israeli entrepreneurs face a tough atmosphere, according to the report.

The report surveys small businesses and government regulation in 31 countries, based on 13 parameters. It terms its conclusions “concerning.”

Small- and medium-sized businesses are crucial for an economy, but these companies face many difficulties, particularly when it comes to financing, notes the report. The financial state of these companies has deteriorated in OECD nations over the past few years, particularly in countries facing acute financial crises such as Greece, Portugal and Ireland.

When it comes to Israel, the report divides the business sector into four groups – companies of 4 employees or less; small businesses of up to 20 workers’ medium-sized businesses of up to 100 workers or annual turnover of 100 million shekels ($27.7 million); and large businesses with 100 or more employees or annual turnover of over 100 million shekels.

Some 96% of Israel’s 505,200 businesses had 20 workers or less in 2012, another 3% were medium-sized businesses, and the remaining 1% were large businesses. Some 43% of all employees – 1.4 million people – work for small- or medium-sized businesses. The remaining 1.8 million employees work at large businesses, the government or nonprofits.

The small- and medium-sized businesses depend on bank financing – 80% of their loans come from banks. Only 15% of corporate bank loans go to small businesses, while 26% go to medium-sized businesses and 59% to large businesses.

Small businesses had to put forward on average collateral equal to 90%, while medium-sized businesses put up 70% and large businesses only 35%. The smaller businesses also pay higher interest rates, since they’re considered higher risk, notes the report.

The report also notes that 12% of Israel’s businesses survive less than a year. Only 46% last more than five years.

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