Additionality of government guaranteed loans for SMEs in 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.