The Crisis As a Tool for Economic Leveraging / By Tal Ben-Baruch
the recession is having its effect and from day to day businesses are increasingly in need of credit. more business owners are seeking financing solutions outside regular frameworks and are finding the answer lies at various assistance funds. we spoke with the management staff of y.s. consultants about today’s financing solutions, whom they are suitable for and how they can provide help. we also spoke about financing and the state of businesses in the south due to the war, and about a unique approach toward leveraging and expanding business activity in additional sectors.
a bit of historical background on y.s. consultants:
yaakov slavin, owner and ceo: in the late 1970s i started an independent business providing tax consulting and accounting services for businesses, and that was the firm’s main area of expertise for two decades.
in 1994, following efforts by atty. carl kaplan to persuade donors and managers at the koret foundation of san francisco, the foundation opened a branch in israel. at first the aim of the foundation was to support and assist business in southern israel (from ashdod southward), especially entrepreneurs who were new immigrants. over time the support expanded to all parts of israel and today the foundation assists businesses from metulla to eilat.
the conditions for operations in israel stipulated by the foundation’s management were the presence of a local bank and economic advisors to act as professionals who would be involved in the process of checking and analyzing financial and business data on the organization requesting the assistance. we wound up winning the tender and became the authorized consultants for the foundation.
based on the foundation management’s goal of running an effective, professional and streamlined system, it set a policy of working with a limited number of select consultants.
ever since then our firm’s activity and expertise expanded to additional fields of consulting and business assistance, financial planning and providing funding solutions for businesses through the koret foundation and other foundations operating in israel. over the years we’ve functioned as external keren foundation consultants with state guarantees (keren tabor), carrying out auditing for it.
the y.s. consultants management teams includes yaakov slavin, ceo, yafit baruch, vice president of marketing, and pavel granditsky, vice president of finance and senior economist.
pavel granditsky, vice president of finance and senior economist (left),
ceo yaakov slavin (center), and yafit baruch, vice president of marketing (right)
which financing solutions do you offer customers seeking your assistance?
yafit: when a business approaches us we match the financing solution that optimally meets its needs and the various criteria it’s required to meet. generally it’s possible to offer and select various financial solutions out of a range of funds.
which kinds of businesses do you typically encounter?
pavel: usually small and medium-size businesses, from the cosmetician running a business out of her home to industrial factories and advanced high-tech companies.
we try to find a solution for every business, large or small. even one-man operations receive support, providing suitable solutions and meeting basic criteria.
the state kept its promise and is launching an aid fund for medium-size businesses
have there been changes in the credit and assistance foundations market as a result of the current economic situation in israel?
pavel: in the credit market there have definitely been changes. just two weeks ago stanley fisher, the governor of the bank of israel, lowered the interest rate again, and this time by another 0.75%, which is the lowest interest rate in israel’s history. it seems that the governor is trying to jumpstart the economy and we’re hoping this move really will help. taking additional credit these days is definitely not just worthwhile, but almost free. it could be that this is the situation the governor wanted to bring about. the decision by the koret foundation to increase the amount of assistance to small organizations and willingness to consider, in certain circumstances, granting loans of nis 300,000 with preferred terms can be seen as a helping hand in tough times. since until recently the ceiling for the preferred terms was nis 200,000 this represents an increase of 33%, which is very substantial. the change comes out of a sense of sensitivity for the difficult financial situation businesses are encountering during the recession period and the realization of the conditions in order to help by providing larger loans. we’re definitely seeing an increase in preferred loans via the foundations, which are very cheap compared to the regular banking credit market.
in light of the market conditions the state is also making special efforts and in a surprising move allocated an additional one billion shekels for medium-size businesses with nis 22-100 million in turnover and passed on the management of the fund to bdi. based on information we received from bdi, the amount of the loans will be 8% of the company’s turnover with lower security requirements – just 25% of the amount of credit requested and a one-year grace period. these are very attractive terms compared to other loans offered today in the bank credit market, and based on what people are saying at the foundation’s management there’s a lot of interest and dozens of requests have already been filed.
are you seeing a change in the type of requests you’ve been receiving as a result of the economic situation?
yafit: there’s been a very significant increase in requests – several hundred percent. a few months ago the reason for applying was investment purposes or business development, whereas today many more businesses are looking for help in funding returning capital, they’re trying to keep their head above water.
we’re also seeing that the quality of applications has decreased considerably. we’re getting more and more people whose checks have been bouncing or who had a credit limit placed by the bank, and unfortunately we’re unable to assist with financing in such cases. we give them last-moment advice, but sometimes by the time they come to us it’s already too late. because of the economic situation the number of applications has grown dramatically, but the percentage of rejected requests has also grown substantially.
what advice can you offer to business owners to get through the coming period intact?
yaakov: the solution to financial suffocation is not necessarily through cash flow from various funding sources. it’s more correct and easier to treat the symptom of the suffocation than the outcome of it. many of us have heard this on various occasions, but unfortunately not everyone has internalized the underlying message.
we offer businesses additional services besides funding solutions, based on a desire to provide business owners and managers with tools and practical techniques for financial management and planning. every funding solution succeeds when there’s proper, careful planning; a funding solution without planning is destined for failure.
another important piece of advice for business owners on the issue of financing is to take money when it’s given to you and not when you need the money. most people turn to the banks and foundations when the situation has already deteriorated, and then the banks don’t approve the loans. a business that is given money is in good shape, so it’s better to take the money and put it off to the side for harder times.
pavel: the best piece of advice is not to wait until the last moment when things get really bad, but to try to see two steps forward. planning is always needed, that’s the backbone of every business. when a business comes at the last moment there’s no longer any planning to do and the chances of pulling through are low. our service is not just about finding sources of funding, but also providing explanations and tools for planning and proper management, from formulating the business concept to building a marketing, organizational and financial strategy. we accompany and advise businesses over the long run.
have you seen businesses in the south are being adversely affected as a result of the security situation?
yafit: we’ve noticed an increase in applications from the region. now that the security situation has calmed down a bit and life is getting back on track there, business owners are able to attend to the harm suffered as a result of the war, so we’re anticipating the number of requests to increase. in recent years we’ve assisted dozens of businesses in areas near gaza as well as sderot and its surrounding area that have been undermined by the dismal state of security there for years. one example is mdc plastic industries ltd. in sderot, which has 20 employees and received assistance from the keren foundation through us.
have foundations altered their loan criteria as a result of the situation?
pavel: just recently the keren foundation opened a fast loan track for businesses in the south that have encountered specific cash-flow problems because of the security situation in the region and the economic recession. working jointly with the bank it was decided to open a three-month track for loans of up to nis 60,000 with an accelerated approval procedure and at a minimal cost, all in order to allow businesses in the area to cope quickly and easily.
the state also deserves credit for opening a special track at the foundation with state guarantees for businesses in the gaza periphery area, providing business owners with an annual turnover of up to nis 22 million to receive preferred loans with very low securities of 10% and with a one-year grace period on paying the principle. this is a very attractive loan and is especially suited to the needs of businesses in the gaza periphery area, which were severely affected during the war and by the state of security in this area in recent years.
in light of the unpleasant reality of the state of security in israel, unfortunately we’ve acquired experience in rehabilitating economic damage as a result of the war or the state of security. two years ago, during the second lebanon war, the koret foundation came to the aid of businesses in the north that were harmed by the war.
during 2007 the foundation opened an additional funding track in cooperation with the jewish agency to assist businesses located in the north. this track has been found to be very successful and continues to operate to this day. the loans in this track are given to jews and arabs alike, with full cooperation between the koret foundation and the jewish agency, via bank otzar hachayal and the arab israel bank.
has there been a change in the relations between you and your customers in the arab sector following the war in the south?
yafit: not at all. our relations were and still are very good. there has been no change on our part or on the part of our customers from the arab sector as a result of the war. we don’t mix politics with our work.
it’s very important to us to maintain good relations with all of our customers, without distinction. in fact we find our cooperation with the arab and druze sectors to be very positive and important to the development of the country and the economy.
pavel: that’s entirely true. shortly before the war in the south began, during the period of tension there, i visited a customer in shfaram who hosted me with amazing hospitality and our communication was excellent. when all is said and done all of us have a joint interest in flourishing and prosperity.
are there other sectors that receive this kind of special attention from these foundations?
yes, certainly. for instance, we received an application for the koret foundation from an organization that coordinates business activity that creates employment for the blind and deaf. through us the koret foundation provided this organization substantial assistance, contributing to the continuation of this important endeavor.
what is the procedure a business owner has to go through in order to receive this type of loan?
yafit: generally a business owner contacts us by phone or via the website and we conduct an initial conversation to obtain general information: what line of work he’s involved in, his annual turnover, what amount of money he’s expecting to receive a loan for, how many financial commitments the business has, whether the bank has placed a credit limit in receive years, whether there have been bounced checks, etc. based on the information we receive we help him select the type of assistance he needs and work out a financial solution that meets his needs.
the application process takes about a month because the foundations generally give most of the securities to the bank that is actually providing the loan, and since foundation money is at risk careful checks are conducted to ensure the enterprise meets the criteria and is capable of meeting the loan repayments, and this is done in a way that minimizes the risks. the process goes like this: if the initial request by the enterprise is accepted he is interviewed by the bank, and if he receives the recommendation of a bank approved by the foundation we’re asked to write a business plan for the customer. we visit the business, get an impression of operations, gather all of the necessary documents and submit the plan to the foundation as the final stage before the loan is approved. at the koret foundation, for instance, as consultants for the foundation we write the plan, we’re entrusted by the foundation and the foundation relies on us to present a true and accurate picture of the situation, which can then be used to assess the business and its ability to meet the loan payments. after submitting the plan the foundation and the bank conduct a final check before granting final approval to execute the loan.
why is it worthwhile for a customer to submit an application through you?
applying through us shortens the procedures and allows the customer to receive full service from start to finish. our know-how and experience provide a tremendous advantage for those who want to submit a request for credit. we’re familiar with the processes, know what’s important and what to emphasis, and this substantially increases the chances of receiving financing approval.
what’s your forecast for the coming year?
yaakov: we try not to get involved in forecasts. we’ve found that all of the recent forecasts didn’t come to fruition we’re happy to say, and of course economic heads, through their hard work, were largely responsible for this. it should be kept in mind that there are quite a few businesses that are in good shape, but because of the atmosphere everyone’s convinced they’re in bad shape too. when you turn to a business owner and ask him what kind of shape the business really is in, he suddenly notices almost nothing has changed. the recession is psychological and business owners are generally influenced more by the general state of the economy than by the actual condition of the business. i advise business owners to keep going and not let up. during periods of recession it is essential to operate vigorously in order to foster and develop businesses. this is the only way we can succeed and flourish in the future.
to learn more about y.s. consultants and the koret foundation, take a look at the following short film, which relates the stories of two businesses the koret foundation, through y.s. consultants, helped stabilize financially.
to view the film, click here.
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