Big businesses have had little trouble borrowing from a variety of sources during the coronavirus crisis, but smaller businesses faced a credit crunch despite government promises to help them, figures issued by the Finance Ministry on Monday showed.
The treasury said big businesses, defined as reporting annual turnover exceeding 250 million shekels ($77.6 million), borrowed 5.6% more in the third quarter compared with the end of 2019. Lending to small and medium-sized businesses grew less than 1% and lending to the tiniest businesses, with annual turnover below 10 million shekels, fell 0.6%.
The figures point up how hard it is for the smallest businesses to get the cash they need to weather the crisis. The downturn, in contrast to the 2008 recession, hasn’t hurt the financial sector, but government efforts to increase liquidity throughout the economy have failed.
Overall, lending has grown during the pandemic, but slowly. Total borrowing by business sector rose by just 1 billion shekels, to 963 billion. Loans outstanding to big business jumped 11% in the first quarter, before Israel’s first lockdown, as bigger enterprises took advantage of the cushion offered by the banking system. But big businesses subsequently repaid much of this debt.
Smaller businesses, especially the tiniest, have much less access to bank credit. Government guarantees and loan funds were supposed to help them obtain more credit, on the assumption that these businesses are key to continued economic activity and to post-pandemic recovery. But the figures showed they didn’t have the intended effect.
- In First, Israel Has a Negative Interest Rate. But Will It Overcome Lockdown Fears?
- Wave of Business Failures in Israel Is Expected to Continue Into 2021
- U.S. Dollar Trades at 24-year Low Against Shekel as Israel's Central Bank Intervenes
Banks, by far the biggest source of credit with 476 billion shekels in loans outstanding at the end of August, increased business lending 3.2%, by 15 billion shekels. But the growth was entirely due to the government-backed loan funds established in April, which lent out 19 billion shekels. Without them, bank lending would have declined 5%, the treasury said.
While the government guarantees helped, Israel was still a laggard in terms of bank lending during the pandemic. The average rate of growth in Europe was 5.8%, although Israel saw more growth than Australia (1.8%) and Canada (2.9%), the treasury said.