CP credit line/ShutterStock
Following the Finance Committee's approval of the extension of the compensation plan for the business sector following the war, with more and more businesses reporting a dramatic drop in income, data published by the Bank of Israel shed light on the scope of fees paid by small businesses for credit they do not use.
According to the data of the Bank of Israel (based on the weighting of the reports of all the banks) for the third quarter of 2023 (before the events of October 7), the total credit frameworks for businesses this year were estimated at an amount of approximately NIS 93 billion - a slight increase compared to approximately 91 billion shekels last year.
However, despite the fact that there was an increase in the frameworks, there was a slight decrease in the extent of the actual used balances from approximately NIS 18 billion as of 12.31.
22 to approximately NIS 17 billion as of 09/30/2023.
For the current account frames, the banks charge an allocation fee at an average rate of 2% on the entire frame, and this is in addition to the interest charged on the actual obligation balance. In the absence of official data, and based on the balance data published by the Bank of Israel, it is estimated that this is the collection of an allocation fee Credit at a rate of over a billion shekels per year (!) for a critical service for business owners who must have frameworks as a tool for cash flow management.
"The smaller the business - it pays more for credit"/ShutterStock
Small frame - low utilization percentage
"At the level of the individual business owner, this is thousands of shekels a year just for the 'right' to be in the red," says
Sa'ar Zakharish, CEO of bizi
, adding that "if we take for example a business owner who manages a bank balance of 250,000 shekels and has an average debt balance of 100,000 shekels during the month - The same business owner will be required to pay 10-12% interest on the outstanding balance (ie 10,000-12,000 NIS interest) and in addition pay a 2% allocation fee on the entire framework (ie an additional 5,000 NIS).
In the bottom line, the business owner will pay NIS 15,000-17,000 per year for an average debt balance of NIS 100,000 - that is, an effective interest rate of 15-17%.
" the actual utilization patterns of the credit frameworks of businesses in the past year, and discovered that the smaller the framework, the lower the percentage of its relative utilization by the business.
Thus, in a framework of up to NIS 50,000, the average utilization was NIS 12,756, which is about 25.5% of the framework, And in the framework of up to NIS 100,000, the average utilization was 33,876 NIS, which is about 34% of the framework.
Whereas the higher the credit limit, the higher the credit utilization.
Thus, within the framework of up to 200,000 NIS, the average utilization was 108,726 NIS, which is about 54%;
In the framework of up to 350,000 NIS, the utilization was 190,456 NIS, which is about 54%;
And within the framework of up to NIS 500,000, the utilization was 252,168, which is about 50%.
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Credit limit as an existential need
Zakharish: "Most of the small businesses in Israel are required to have a credit line in order to exist and manage the current flow. The situation today is that the businesses give cheap credit to their customers and at the same time are required to receive expensive credit through the "credit line" from the bank where they operate. In our estimation, based on the credit balance data published by Bank of Israel, this is an allocation fee at an average rate of 2% that is levied on balances of tens of billions of shekels, meaning that today businesses pay banks over a billion shekels per year just for the allocation fee, this is even before interest.
"The conclusion of the sample is that the smaller the business - it pays more for credit, a large part of which is not used. The vast majority of business owners do not know how much it actually costs them to use the bank's credit, and according to a sample we conducted based on the analysis of the current account of thousands of businesses, in our estimation the average effective cost of the credit facilities reaches an average of about 18% on the utilized obligation balance. This is a high interest rate to begin with, to which is added a fixed allocation fee whose relative rate increases the less the facility is used.
"The solution that Bizzy provides allows those businesses to be given the facility which they need at a competitive interest rate without paying an allocation fee.
The data we collected sharpens the importance and need for alternative financial solutions that will solve unnecessary payment on frameworks that small and medium businesses pay for."
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