Raising Secured and Unsecured Commercial Lines of Credit from Commercial Banks in Israel

Raising Secured and Unsecured Commercial Lines of Credit from Commercial Banks in Israel
Israel has long been attracting the attention of investors and corporations who wish to conduct business or purchase real estate or business assets in the Middle East's Silicone Valley. However, those businessmen or corporations sometimes find working with Israeli commercial banks, to be quite challenging.

When reviewing a business loan application, commercial banks in Israel generally adhere to globally accepted standard practices, while sometimes looking at things a bit differently or adding other aspects to their reviewing process.
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These standard practices are concisely named "The 3 C's of Commercial Credit" (or any number of other variations to the name), and include:
Character – the borrower's character refers to a number of important things: their financial history, their field of expertise, their professional history, debt vs. equity, and the like. By talking about character the bank tries to get a firm grasp on who it's dealing with.

Capacity to repay – a borrower's capacity to repay pertains to their ability, or to their business' ability, or to the ability of other businesses they own, to generate a sufficient flow of cash and income to pay back the loan that was issued to them. By reviewing capacity to repay the bank tries to evaluate the borrower's ability to successfully and consecutively pay their debt.

Collateral – the collateral a borrower pledges to the bank to secure the loan or credit is meant to make sure they put everything they got into the business to make it work, and thus, repay its debt, or to give the bank other means to repay the debt in case something goes wrong. In such instances, for example, when the business defaults, the bank can sell the pledged assets (at liquidation prices) to repay the borrower's debt. Collateral can include account receivables, machinery, real estate, bank deposits, and the like, and is meant to ensure that the bank will get all or part of its money back even if the business fails.
Naturally other things are reviewed, such as the percentage of equity vs. debt, origins of equity and transferred funds (Israeli banks will insist on receiving documented confirmation that all taxes pertaining to transferred funds have been fully paid, for example, among other things). 

Here lies the difficulty

After reviewing the 3 C's, you can understand why many who have most of their assets and business activities overseas find it challenging to work with commercial banks in Israel and getting what they need or expect, and why Israeli banks have a hard time issuing lines of credit to foreign investors or corporations: they don't know enough about them and for the most part, Israeli banks can't rely on or pledge assets that are overseas and will not rely on borrowers' capacity to repay loans when said capacity is derived from overseas income.
Where's the good news?
The good news is that there is a way to raise both secured and unsecured commercial lines of credit from Israeli commercial banks. Hiring the help of a professional local consultant who analyzes the transaction, compiles a business plan that meets banks' every demand and expectation, and negotiates with Israel's commercial banks usually goes a long way in terms of launching a proliferous and successful relationship with the bank and in creating willingness to examine business plans and credit applications.

Best of luck,

Ari Podliszewski-Lavi
B1 Finance

Site: www.lihiyot1.com
Email: finance@lihiyot1.co.il
Tel.: +972-3-6777127
The author has served in various senior commercial credit management positions in Bank Leumi and today offers professional commercial banking strategy consulting services.

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