Israel's Small Businesses Face Debt Surge and Call for Interest-Free State Loans

A new Bank of Israel report shows how badly small and medium businesses have been hit by the war economy, with non-financial business debt jumping by 110 billion shekels in a single year. Total debt in that sector reached a record 1.51 trillion shekels, an 11% annual increase that the article says is almost twice the pace of the private sector.

The report, published in March and referring to the final quarter of 2025, describes businesses leaning on heavy bank borrowing to cover production gaps, operating costs and payments to suppliers. Many owners are also taking bridge loans just to make payroll when customers do not pay on time, which means they are paying interest on money that does not generate profit.

Attorney Yosef Weitzman, who handles insolvency cases, said the numbers did not surprise him because he sees these cases every day. He pointed to a State Comptroller finding from about a year earlier that roughly 75% of small-business aid requests were rejected. In his words, this is the national failure that is creating the huge debts now “choking” the sector, and he argued that the state must provide interest-free loans to prevent mass collapse.

As cash flow worsens, more businesses are turning to non-bank credit, where loans are faster but carry very high interest rates, a move experts say only deepens the hole and speeds up failure. The article also says more companies and small businesses are entering insolvency proceedings, but often too late, after accounts have already been restricted and checks refused. Weitzman said existing legal tools such as restructuring and stay-of-proceedings orders can sometimes be the last barrier against complete collapse, but will not be enough without immediate government action.