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Additionality of government guaranteed loans for SMEs in Israel

Author

Listed:
  • Tzameret H. Rubin

    (Loughborough University)

  • Nir Ben-Aharon

    (Bank of Israel)

Abstract

The study examines the Israeli Government Loans for SMEs in 2015. Our findings are based on three surveys. A business survey of 384 businesses that were granted a Government loan, a business survey of 99 businesses that were granted loans but decided not to take them and a survey of 50 loan consultants who advised those businesses about their eligibility and the Terms and Conditions of the loans. We tested Loan Adjusted Additionality and Loan Baseline Additionality and found that 53% of loans taken from the Government Loans Foundation (GLF) are additional loans. SMEs would not have taken a loan, or any part of one, if not for the Government Loans Foundation Scheme. Our contribution to the literature is by including Indirect Additionality, demonstrating the importance of the GLF Scheme, not only by assisting SMEs in their financial planning and growth but also, by signalling early stage business resilience, reducing the risks for commercial banks through regulated, financial due diligence. This outcome expands the pool of SMEs which have access to free market loans and has the potential to improve their survival rate, thus fostering economic growth.

Suggested Citation

  • Tzameret H. Rubin & Nir Ben-Aharon, 2021. "Additionality of government guaranteed loans for SMEs in Israel," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 45(3), pages 504-528, July.
    • Handle: RePEc:spr:jecfin:v:45:y:2021:i:3:d:10.1007_s12197-021-09538-8
    DOI: 10.1007/s12197-021-09538-8
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    References listed on IDEAS

    as
    1. Jae Kang & Almas Heshmati, 2008. "Effect of credit guarantee policy on survival and performance of SMEs in Republic of Korea," Small Business Economics, Springer, vol. 31(4), pages 445-462, December.
    2. Vincent Chandler, 2012. "The economic impact of the Canada small business financing program," Small Business Economics, Springer, vol. 39(1), pages 253-264, July.
    3. Riding, Allan L. & HainesJR., George, 2001. "Loan guarantees: Costs of default and benefits to small firms," Journal of Business Venturing, Elsevier, vol. 16(6), pages 595-612, November.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Adjusted additionality; Baseline additionality; SME; Government loan;
    All these keywords.

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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