Small business is considered an important engine of the economy in most Western countries, and successful businesspeople, along with the ideas that made them a success, are often feted by politicians, presidents and prime ministers as worthy examples of what one can do with a little “sweat equity.” Unfortunately, though, many small businesses with promising ideas and products don’t make it to the point where they have an opportunity to succeed, because they can’t get funding from the bank.

Like banks anywhere, those in Israel prefer to lend money to well-established organizations they believe have a good chance of repaying their loans. This policy often leaves small businesses out in the cold. It’s at that point that businesses will seek alternative financing sources — like the Koret Israel Economic Development Funds (KIEDF), which since 1994 has provided some 10,000 small Israeli businesses with over NIS 1.15 billion ($285,000,000) in seed and expansion money, often at better rates than they could have gotten at the bank in the first place, and creating tens of thousands of jobs, said KIEDF managing director Carl H. Kaplan.

“We specialize in microfinance and small business loans, providing funds to businesses that often don’t have access to lines of credit from the bank,” Kaplan told The Times of Israel. “Using our assets as guarantees, borrowers are able to obtain lines of credit from banks that would otherwise probably have been unwilling to provide.”

The importance of small business to developed economies should not be underestimated. In the US, for example, small businesses employ more than half of all private sector workers, produce 29 percent of all US export value, and create 75% of net new jobs (taking into account layoffs and total employment). In Israel the numbers are similar: 55% of all Israeli workers are employed in some 400,000 small and medium-sized businesses, and the government has implemented all sorts of programs to increase that number, since, as a recent Knesset report said, small businesses are more flexible, dynamic, and creative, and increase competition, keeping prices lower.

But it’s those businesses that have the hardest time getting banks to back them. A study by the Israeli Industrialists Association said that 52% of small and medium-sized businesses reported difficulties in convincing banks to give them lines of credit in the second half of 2011, compared to 40% who said they had similar problems a year earlier.

Those are the businesses KIEDF works to reach, said Kaplan, providing them with the guarantees they need to get bank loans, with loans ranging from as little as a few thousand dollars to far higher sums, depending on the entrepreneur’s business plan. “KIEDF was established 16 years ago by the Koret Foundation of San Francisco, which had the foresight then to realize that philanthropy wasn’t just about giving money, but for putting money to work and developing Israel’s economy. Each dollar of guarantee deposit has facilitated 7 dollars of financing. We were one of the first economic development funds in Israel, and are the model for all the others,” said Kaplan.

KIEDF-funded businesses run the gamut, with almost every industry represented — except for high-tech. “The financing structure in high-tech is different. Many entrepreneurs in high-tech prefer not to finance, but to seek equity investments. When they do seek the kind of funding we provide, they are usually in need of greater funds than we can provide.” Other than high-tech, though, KIEDF has funded just about every other type of business.

KIEDF has several loan tracks, including microfinance (with loans up to $5,000), small business loans, programs to help the Arab sector, and an innovative program called Sawa, which provides loans of between $500 and $2,500 to entrepreneurs just starting to get on their feet. In its newest program, KIEDF is providing loans from a special fund for businesses in the Negev and Galilee, with help from the US government-funded Overseas Private Investment Corporation (OPIC), via Bank Leumi. The program is expected to facilitate over $140,000,000 of credit to nearly 3,000 small and medium-sized businesses in Israel’s north and south through 2016. As of the end of 2011, the program has provided $40 million in financing.

“We established KIEDF 16 years ago as a small initiative in the Negev. Now we are returning in a big way to finish what we began a decade and a half ago,” said Kaplan. “We have great appreciation for the involvement of Bank Leumi and OPIC to create with us, for the first time, a major program to stimulate economic development and create thousands of jobs in the Negev.”

KIEDF has also begun funding “socially conscious” enterprises as well, Kaplan said, including a well-known (and very hot) Tel Aviv restaurant that employs former juvenile delinquents and trains them for a new career, and another eatery that employs developmentally disabled adults. “There are so many needs, and a great deal of demand,” Kaplan said. “We’re doing things no one else is. By working with the most challenged populations, KIEDF has created a model which is expanding to additional populations throughout the country including unemployed Jewish women, Ethiopian immigrants and Orthodox Jewish women. The success of SAWA, the only best practice microfinance program in Israel, illustrates its significant possibilities to combat poverty.”