How MATI can help you start a small business

Naomi Saada - MATI, Israel's Small Business Association

MATI is a non-profit organization. There are 23 of them around the country, each independently run.

MATI runs many courses:
Ebay merchandise, running a restaurant, franchising. But there is also a general course, opening a business in Israel. It covers taxation, insurance, banking system, marketing, and making a business plan. At the end of the course you will know 2 things:

1)The vocabulary – ma’am, nicui mas, etc
2)What was the hardest for you to learn, that is where you’ll need professional help.

All courses are subsidized but there is an additional discount (for olim up to 10 years in the country, or returning citizens within 2 years). They will run courses anywhere there is demand, as long as there are 15 people.

Courses can be held in English, Hebrew, or Arabic.

The second (and main) service they provide is private consultation. MATI has in-house consultants who can meet either in JLM or BS. First meeting is what they can provide, what you need going forward, your break even point. Then they decide how to move forward.

The first step is to plan the business properly and have a good business plan. Business plan is also used to present yourself – to a bank, investor, potential partner. If you apply for a loan with MATI you will need a proper plan. Third use of a plan is to follow up while you are running the business. It’s important to sit every week/month/quarter to review how your business is going according to the plan, and if the plan should be modified.

Business plan writing is highly subsidized for Olim. It only costs 250 NIS, which is about 10% of its cost.

You can also get a mentor through MATI – they will give you specific consultation on whatever field you want. You have people who specialize in the construction, or restaurant business, for example and they know the ins and outs. They have to be qualified by Tamat and are called Authorized Mentors.

The first meeting with mentor is fully subsidized for new Olim, and you can get from 8 to 25 meetings for free, depending on the case. So you meet with an in-house consultant, and then decide what kind of specialist you want to meet with. You meet with someone from Misrad Haklitah and they will approve 8 hours. If you feel you need more after that you can put in an application for extension and see if they approve it.

Second kind of mentorship is Tamat mentorship – it is 20 hours. Israeli pays 25% of the fee and Oleh pays half of that (200 per session full price). If you know of a mentor you’d like to work with, if they are authorized you can work with them. Otherwise MATI will recommend someone to you. It is possible to switch in the middle if need be, but there is a procedure and you may need to wait a bit to get someone knew.

There are also volunteer mentors, they can be used if you still need more help after all the hours you’ve gotten.

MATI basically takes you to the point of creating a business plan. If you need long term plan, or need specific help in a field the MATI in-house consultant doesn’t have expertise in, you will be recommended to a mentor.

MATI does not have money to give loans but do know how to ask for them from different places and they can help you apply. Usually the first place people go for a loan is the bank. They may refuse a client either 1) because they do not believe in the business or the client’s ability to run the business, or 2) you don’t have collateral and they don’t want to take a risk on you even though the business sounds great. This is where MATI can really help.

All their sources are better than the bank because they give more money for less collateral. They will also generally give better loan terms than the bank. All these loans will be given through the banks but it’s from public money – from the sochnut, tamat, misrad haklitah, private donors, etc. They put this money in the bank and instruct the bank to give it to you.

For collateral you will need guarantors. Even if you have equity in your house the entire house is fully mortgaged to the bank until the mortgage is paid off so generally to get a loan against it you will have to go to the bank that owns your mortgage.

There are several types of loans you can get through MATI with different interest rates.

Olim loan:
You have the right as Olim to use Misrad Halitah funds.

It’s better to go to MATI when starting a business rather than starting on your own and realized a year later you need help and want a loan, it’s harder to get it retroactively. If you have an existing business and want to expand, you can definitely get a loan for that. It is easier to get a loan for that than a new business. All the loans require some self financing, at least 20% has to come from your own pocket.

There are several things you CAN’T get a loan for:
1)real estate, if you want to buy a place to run your business in. they will help you renovate and buy equipment, but not purchasing
2)salaries, either for you or your employees
Certain things you can get financing for a whole year (equipment) and some for a few months (rent).

Another loan is IFLA – Israel Free Loan Association. It is funded by private donors and they give money for many different things, one of which is starting a business. MATI generally does not recommend these for new businesses, it is better suited for existing business who can pay it back faster. They require 4 guarantors for the full amount, and even though it is interest free they will need it back much quicker (within 30 months) so your monthly fees will be high for a new business. You can find more information on their website –
http://www.freeloan.org.il/english/homepage/
http://www.freeloan.org.il/english/loans/
http://www.freeloan.org.il/hebrew/docs_details/Loan_new_immigrants.html

There is also Keren Shemesh for young (under 35) business people, for opening a new business. It is prime loan. There are several other sources of funding as well, they offer larger loans.

All of these loans know of each other and work together. They will sometimes ask, why did you apply for this and not for that. It is possible to apply for more than one loan, if you can pay them all back. The loans are personal, not for business. If there are two partners in the business they can each apply for a loan but not if they are married – then they can apply for two separate businesses.

Applying for a loan is a 3-4 month procedure. How to deal with this delay:
1)say, I believe in this and I will rent the place and start paying and risk that the loan will come through (90% are approved)
2)I won’t take the place yet, put that information into the business plan (because you can’t write a business plan without a location and you need the plan to apply for the loan) and hope the place will still be available when the loan comes through. You risk the place becoming unavailable
3)You can start to rent the place and not renovate, don’t invest, until the loan comes through, and you may lose time to be able to start the business and you may lose the few months of rent but this is sort of a middle ground.

Misrad Haklitah will give a loan that becomes a grant after a few years (Survival grant).

Opening a tik:
1)most accountants will tell you to open a tik at the last minute and we will explain that the business expenses you incurred in the past couple of months should be included in this tik.
2)Others will tell you to open a tik right away and I’ll explain to the tax authorities that the first few months you did not have any income.

There is no middle ground to be able to try out a business and then see if you want to open a tik. In order to get money from an approved loan you will need an open tik. (it is a very quick process to open a tik so you can definitely wait till the last minute).

Three taxes you will see:
1)Mas Hachnasah – Income Tax
a.There are tax brackets – you pay a higher percentage as you make more money. It is called marginal tax (mas shuli) – on the part that is taxable at 10% you pay 10% and above that you pay 20%.
b.Regular employee gets paid each month and pays taxes each month. Self employed person pays at the end of the year, on what the profits are after expenses.
c.Nicui is a deduction (hotzaah mukeret).
d.It’s very hard to pay all your taxes at once at the end of the year so they do mikdamot. They estimate what they think you will profit and you pay monthly based on that. At the end of the year they calculate what you actually earned and make up the difference – you either pay more if you owe, or they pay you (with interest and inflation) if you over paid.
e.Zicui – these are your tax points. Each year you fill out a form giving all your details and it determines how many points you have. Each person has 2.25 points. A woman has an extra half a point. If your spouse isn’t working you get an extra point. A woman gets a point for each child. Each point is worth 197 NIS. So you don’t pay on the first x amount you earn (point times 197).
2)Bituach Leumi/Mas Briut – start at 1.6% and maximum you pay 5%. There are no exemption points for this. Mas Briut pays for your sal bruit – your kupat cholim. Bituach Leumi is social security.
3) Ma’am – VAT – Mas Erech Musaf. When you collect money from a client (customer at a store, or you provide a service) that includes the 15.5% and you pass that on to the government. Each step of the process adds value, so if you sell a final product you only pay on the value that you added (taking the baked bread and putting it on the shelf) and you already paid the ma’am along the way – what you paid the baker included ma’am for his work, and what he paid the guy who grew the wheat included ma’am for his part, etc. So you can deduct what you’ve already paid. Ma’am is not paid on all expenses, ie salaries, bank loans, etc so you can only deduct what you’ve paid. The rest you pay out to ma’am, this is paid every two months.

Osek Ptur (vs Osek Murshe) is someone who convinces the tax authorities that their income will be less than a certain amount (currently 67,000 NIS/yr) and then you don’t have to charge Ma’am because what it will cost the government to collect the taxes will be less than what you will be paying in taxes. The flip side is that you don’t get a refund on ma’am that you pay for expenses, like buying a computer.

Franchise.org.il – MATI can connect you with franchises you can buy, which may be a way to start a more stable business (although more expensive) and they provide additional services. You can find more information on MATI’s site.