Recent years have seen increasing awareness and recognition of the role
played by small business and its contribution to the economy, especially
in industrialized countries.
The major advantages of small business lie in its potential for
innovation, flexibility, low start-up costs, rapid development, and the
distribution of risk. Small business provides a solution not only to a
general unemployment situation but also to the employment problems of
special population groups such as new immigrants, women and demobilized
soldiers.
Small businesses, however, suffer from obstacles encountered in financing,
management, marketing, export facilities, access to information sources
and bureaucracy. All of these make it difficult for small businesses to
establish themselves and compete in the free market.
The wave of mass immigration from the former Soviet Union which Israel
witnessed in the early nineties motivated the authorities in charge of
immigrant absorption to focus on small business encouragement. The
underlying idea was to find rapid employment opportunities for the
immigrants while absorbing them in the economy in their professions and
trades. Preliminary studies showed that this could help solve the
employment problems of some 10-15% of the immigrant labor force.
Small Business Authority of Israel
The above policy led to the establishment in 1994 of the Small Business
Authority of Israel (SBAI), to formulate policies for encouraging small
businesses, entrepreneurship and related activities and coordinate the
operation of the various agencies working in this realm.
Operating under the auspices of the Ministry of Industry and Trade, the
SBAI includes member organizations such as government ministries (Finance,
Labor and Social Affairs, Immigrant Absorption, Tourism), business
associations (the Manufacturers Association, the Association of Chambers
of Commerce, the Craft and Small Industry Association and merchants' and
workers' organizations), public institutions and volunteer and
philanthropic organizations.
SBAI's major tasks
- To initiate and apply government policies for encouraging small business
enterprises.
- To coordinate all agencies and bodies operating in the field of small
business.
- To set up local, regional and professional centers for encouraging small
businesses; to assist, guide and monitor the activities of these
centers.
- To initiate legislation in the small business sector.
- To conduct education and training in managing, establishing and
operating small businesses.
- To initiate the establishment of capital funds and other financial
resources for small businesses.
Small Business Development Centers (SBDCs)
SBAI's field activities are carried out by centers located throughout
Israel, whose goal is to aid entrepreneurs and small business owners in
establishing, managing and expanding their businesses.
SBAI initiates the establishment of such centers and supports them by
providing guidance and assistance, granting partial financing and placing
professional services at their disposal. The SBDCs are meant to operate as
independent, self-sustaining units, rather than as branches of SBAI and
are designed as "one-stop shops" which respond to the needs of small
business owners and entrepreneurs planning new businesses.
Services provided by the SBDCs
- Information and Guidance
Initial examination of business concepts, information on permits and
licenses required for establishing a business, help in finding business
partners and investors, referral to additional information sources.
- Professional Counseling
The nature and duration of counseling is personally adapted to each
business owner. The counseling process can therefore consist of one
elementary meeting, a referral to extensive professional consultation, or
long-term tutoring. Counseling is provided in diverse subjects, such as
preparing business plans, money management, pricing, tax planning, sales
management, streamlining production, export and more.
- Referral to sources of funding
Assistance in the application process required for the special funds set
up for small businesses or other financing programs. SBDCs also help in
preparing the business plans necessary for obtaining funding.
- Training
SBDCs offer courses and workshops specifically suited to small business
owners or new entrepreneurs. Among the subjects studied are the
establishment and management of a small business, money management,
preparing a business plan, marketing and more.
Sixty-nine SBDCs are currently in operation and a few more are in various
stages of establishment. Most of the SBDCs operate on a local basis,
usually in cooperation with economic development agencies of local
authorities. Some of them, however, are specialized centers, which operate
in fields requiring special expertise or specific approaches, such as the
SBDC for the agricultural-cooperative community, the Center for
Ultra-Orthodox Women and the Center for Arab entrepreneurs in East
Jerusalem (the latter two within the Jerusalem SBDC).
The first SBDC to be established, even before the government initiated its
country-wide drive, was the one in Jerusalem. From its opening in 1991
through mid-1996, over 6,200 people have approached the Center for advice.
A total of 1,355 businesses have been started or expanded by the Center,
of which 530 (40%) are owned by new immigrants.
Over 2,800 jobs have been created with the aid provided by the Jerusalem
Center. Over those five years, some NIS 40 million (approx. $14 million)
in loans have been approved, though only some 60% of those approved
actually exercised their rights to this credit. The number of women who
approach the Center is increasing, and last year they accounted for 30% of
all applicants. Only 15% of the businesses aided by the Center have
failed, a low rate by international standards.
Small businesses are also gaining popularity within the
agricultural-cooperative sector of the economy. The severe financial
difficulties arising from the declining profitability of agriculture have
brought about the establishment of a SBDC whose main object is to aid
farmers interested in making the transition from agriculture to small
business, without detriment to their cooperative way of life. Some 30
kibbutzim have already appointed small business coordinators, and in most
of them businesses have already been launched, with the aid of the SBDC.
Some examples are: in Afikim - some 20 small businesses, such as a dog
kennel, an air-conditioner repair shop and a children's wear store; in
Mishmar Hanegev and Dvir - software houses; in Beit Hashita - a graphics
studio and publishing house; in Dorot - a plant for garlic-based products.
Most of these businesses have been established and are run by kibbutz
members, who have individual financial arrangements with the kibbutz.
The State Guarantee Fund for Small Businesses
The Fund was initiated with the goal of helping establish or expand small
businesses in all sectors of the economy. The government serves as the
loan guarantor for bank loans, so that the banks will extend loans to
small businesses despite insufficient collateral. Rather than collateral,
the banks require a detailed business plan, on the basis of which the
application for credit is judged. The Fund is managed by an SBAI steering
committee, on which the Ministries of Finance and Industry and Trade are
also represented.
The credit limit for a single business is NIS 500,000 (approx. $150,000).
The loan is given for a period of up to five years for the purchase of
equipment and one year for operating capital. The borrower need provide
only the following collateral: mortgage of the fixed assets financed by
the loan and a personal guarantee.
Eligibility terms for a loan are as follows:
- The business may employ no more than 70 workers and its annual turnover
may not exceed $5 million.
- The requested credit line may only serve new business activity, i.e.,
establishing a new business or expanding an existing one. It may not be
used to finance real estate purchases and construction, or to purchase
existing businesses.
- The business owner must invest his or her own capital at a rate of no
less than 25% of the total credit approved.
During its first three years of operation the Fund has guaranteed loans to
some 2,800 small businesses, for a total of over NIS 600 million (approx.
$200 million).
Ministry of Industry and Trade Services for Small Businesses
In addition to the services provided by SBAI and the SBDCs, the Ministry of Industry
and Trade also provides services directly to small businesses.
Technological Incubators
The technological incubators established over the past three years
constitute a supportive framework enabling beginning entrepreneurs with
innovative technological ideas - veteran Israelis and new immigrants alike
- to develop their ideas into commercial products and to reach a point at
which they can attract investment from the private business sector.
Business Tutoring
The business tutoring project is meant to provide small and medium-sized
businesses with managerial aids and professional counseling through
training and practice at the level of the individual firm. Some 400
skilled and experienced consultants from the business sector provide
professional consulting to enterprises employing between 5 and 100
persons.
Consulting is provided in the following fields: general management,
financial management, financial review, production management, data
systems and computerization, marketing and human resource management. The
Ministry of Industry and Trade covers 75% of the consultants' fees, and up
to 150 hours of consultation for every enterprise.
The SBDCs also runs a tutoring program of up to 20 consultation hours for
businesses with 1-4 employees. This program's goal is to meet the limited
needs of such businesses, hence the limited number of hours.
By the end of 1996 the various tutoring programs had embraced over 1,900
businesses in the 5-100 employee range, and over 2,000 businesses in the
1-4 employee range.
Examples of Small Businesses Aided by SBDCs
Anat Kochba, a communication therapist, embarked on a new career in 1990
when she quit public service to set up a private institute which deals
with hearing deficiencies. She had worked for 15 years in various
hospitals and in the medical services at schools for the handicapped.
With the help of her husband, an economic consultant, she approached the
regional SBDC, which granted her a loan to cover one-third of the
equipment's cost, on top of their own $150,000 investment. The company,
which provides a whole range of communication therapy services, was
initially located in Hadera, a town lacking such services. The Hadera
operation was so successful that three years later they opened a second
branch, in Haifa, this time with the aid of the Claridge Fund for Small
Businesses. The Haifa branch also proved to be a hit and at peak periods
the two branches hired up to 11 employees. The Kochbas are now planning to
open a third branch, in the Tel Aviv metropolitan area.
Helena and Igor Birman, both engineers in their early forties, immigrated
from Russia in 1990. Once they mastered the language, they went to work in
a Tel-Aviv metal-working plant, but they soon started to contrive a plan
to establish a shop of their own in their specialized field: plastics
casting.
Market research they conducted indicated the existence of an adequate
market. Most of the molds for plastic products casting were imported from
abroad and only in recent years have a few small shops started to
manufacture them locally.
The Birmans were granted NIS 30,000 from a joint Jewish Agency and
Ministry of Industry and Trade fund, most of it as a grant. A year after
they opened shop in Petach Tikva, the enterprise's turnover had already
reached NIS 250,000. Igor is optimistic, indicating that although the
plastics market in general is saturated, there is always need for
first-rate molds, which enable the production of high-quality plastic
products.
A new computer company was established in Jerusalem in January 1995 by two
engineers, Motty Kintslinger and Udi Kra, who had left their jobs at
Digital Equipment Corp. The company takes computer component layouts and
"downsizes" them, enabling more information to be crammed into less space,
resulting in lower production costs. The company can now fit up to 1
million transistors into a square inch.
For this company, small has turned out to be big: it finished its first
year with revenues of $1 million, and was expected to reach $3 million in
1996. It currently employs 13. The company received consultant services
and a loan through the Jerusalem SBDC.
Uri Magen, of moshav Kfar Hess in the Sharon region, set up a parrot
farm with the help of the SBAI and the Business Development Department of
the Moshav Association. This was a natural development for Uri, a bird
lover, at a time of hardship in conventional cooperative farming.
The farm offers a range of activities: a film on the life of parrots in
nature and in captivity, a safari track, an arts-and-crafts room and a
petting corner. And, most important, there are parrots from the world
over, a wide variety of species, colors and voices - some of them very
exotic and rare birds. The farm attracts visitors from all over the
country and has become a popular tourist attraction.
International Activities
The SBAI also shares its know-how with other countries. Cooperation
agreements in this field have been signed with the Indian government, with
the Interamerican Development Bank (IDB) for Latin American countries, and
with the European Union. A similar agreement is expected to be signed
shortly with Mexico. Seminars and study meetings have also been held in
Argentina and Belarus.
Within the scope of its foreign activities, the SBAI is a member of the
following international organizations: the International Small Business
Congress (ISBC), the World Assembly of Small and Medium Enterprises
(WASME), the International Council of Small Businesses (ICSB), and the
National Business Incubator Association (NBIA).
For further information, please contact:
Israel Small and Medium Enterprises Authority
14 Gruzenberg St.
Tel Aviv 65811
Tel: (972)-3-510-7555
Fax: (972)-3-510-7557
Website: http://www.asakim.org.il/
E-Mail: ismea@ismea.org.il