Financing projects and companies through lending is a perfectly healthy phenomenon, meaning that there will be a proper analysis of financial data, a “sustainable” mix of lending and equity and a clear possibility of repayment. It is noted that in a low interest rate environment, the right leverage rates may increase a company's profit margin.
The problems arise, and mainly concern loans that were granted in the past, when the borrower becomes unsustainable, that is, as long as the repayment period is extended or the interest rate of the loan is reduced, his income can not meet the installments. In such cases, the sale of the mortgage may proceed, but there are issues regarding the main residence.
Through this problem, ie the non-viable borrowers who had applied for inclusion in the Estia project, the idea for the transformation of KEDIPES into a loan management organization, from the wider banking system, implementing social policies to secure the main residence through recovery of the property and its immediate rent to the borrower.
The main components of the success of such an endeavor are the right structure and administration and transparent procedures. It should be clear that the inclusion of a loan in the institution does not mean that the loan will be repaid or that it will be “cut”. Priority will definitely be given to restructuring the loan, where permitted. Otherwise, the management of the institution should proceed with the appropriate sale procedures and at the same time manage the issue of guarantors.
As far as businesses are concerned, there are many examples of companies that borrowed amounts that could hardly be serviced. After all, a decade ago a key parameter to get a loan was the value of collateral, without giving the necessary importance to the ability to repay. In addition, many organizations failed to adapt to the new market data and under the pressure of high borrowing were led to closure.
The need for continuous development of business organizations and the taking of corrective measures when the goals are not achieved are imperative. Equally important is to ensure proper financing in advance without over-leveraging the company's assets.
Changes within businesses are fueled either by the problems that have accumulated or by the opportunities that are created. For example, if two companies believe that merging will create synergies that will reduce costs and enhance overall market share, then rather than acting independently competing with each other, they are more likely to merge.
Unfortunately, management models are often responsible for the collapse of an organization, either because of their inability to realize in time the changes that need to be made in the business model or in the structural errors that exist in the company. The so-called overtading is a classic phenomenon for businesses, ie to try to grow rapidly without having the liquidity and infrastructure to support the specific growth.
Issues such as organizational structure, business plan, cost analysis and mix of financing mechanisms need to be given special attention in the case of business activities, especially when referring to relatively new companies.
All of the above are combined with the reports made on the legislative framework of the divestitures (the last amendment made by the Parliament to extend the period of suspension of divestitures has been returned by the President), the restructuring code of the Central Bank of Cyprus and the framework insolvency. The common denominator of the three is whether the financial data of the company's balance sheet show that it is viable and with specific restructuring solutions the loan obligations can be repaid.
At the same time, the financial sector, which seems to be developing, significantly free from the burdens of the past, is called upon to support and finance the Cypriot economy. Liquidity is available, the European Central Bank keeps interest rates low, but increased pandemic risks and the inability to find equity in many cases make lending difficult.
