In Israel, a small business registered as an osek patur (an exempt dealer that does not charge VAT) does not have to change its status before applying to the state-guaranteed loan fund. That is what the head of the fund's coordinating body said in a webinar on financing for small businesses, held by the accounting firm BDO and published at the end of October 2026. The coordinating body reviews applications and the business's ability to repay before they reach the bank or lender for a decision.
Apply exempt, receive as a VAT dealer
At the end of the webinar she was asked whether the type of business affects eligibility for a state-guaranteed loan. In her words, an osek patur can approach the fund as exempt. If the application is approved, it will have to become at least an osek murshe (a VAT-registered dealer) before the money is paid out. "Exempt dealers can't receive the money in the end," she said. VAT-registered dealers, companies, partnerships and non-profits can receive the loan without any change.
The same rule appears on the Federation of Israeli Chambers of Commerce's page about the fund: an osek patur may apply, provided that before receiving the loan it moves to osek murshe or limited company status. On the fund's own FAQ page, on the Ministry of Finance site, the case is listed under the track for businesses being established, as a business that has been exempt so far and plans a large investment that will move it to osek murshe or company status.
How the guarantee works
The fund is run by the Ministry of Finance and lends to businesses from the founding stage up to annual turnover of 100 million shekels. According to her, the state guarantees 60% to 85% of the loan to the bank or lender, which makes the lender more comfortable extending credit. The loans themselves are made through banks and non-bank lenders.
An osek patur still has to meet the threshold conditions. According to the fund's FAQ, a business is not eligible if its account, or the private account of one of its shareholders, is garnished, restricted or about to be restricted.
Work out the switch before applying
The move to osek murshe comes with the loan, so it is worth working out before applying. From the switch on, the business charges VAT on every sale and files VAT returns, and in return deducts the VAT on its expenses. A business whose customers are private individuals will have to decide whether to raise prices by 18% or absorb part of it. The guide to moving from osek patur to osek murshe explains what changes the day after, including what happens to documents already produced.
An osek patur whose revenue is approaching the osek patur ceiling will have to switch soon anyway. For that business the fund can finance the next step, such as equipment or stock, without waiting. Prime fell to 4.75% with the September rate cut, and it is worth comparing the fund's offer with others before signing.