— SMEs rush to secure €306 mln —
Small to medium sized enterprises in Cyprus are rushing to complete their files and submit applications in order to grab a slice of the EUR 306 mln in new loans that the island’s three largest banks will be giving in association with the EIB, which according to Financial Mirror estimates, will be costing on average 3.35%.
The European Investment Bank signed a EUR228 mln loan agreement with the Cypriot commercial banks on Friday, as part of a broader strategy to boost liquidity to SMEs.
According to the deal, EUR 120 mln will go to the Bank of Cyprus, EUR 50 mln to Marfin Laiki and EUR 58 mln to Hellenic Bank. The Cypriot banks will also have to match the EIB loans with their own funds available.
Cyprus allocation
However, not all of the money will end up in Cyprus. With the exception of Marfin Laiki, which has signed a separate loan deal for EUR 80 mln earmarked specifically for Greece, and is committed to spending the EUR 50 that it borrowed from the EIB in Cyprus, the two other banks will commit some of the money in Greece as well.
Bank of Cyprus will use EUR 75 mln of its EUR 120 mln total in Cyprus (EUR 45 mln in Greece) while Hellenic Bank will use EUR 28 mln of its total EUR 58 mln in Cyprus (EUR 30 mln in Greece).
This means that the borrowing from the EIB for Cyprus SMEs totals EUR 153 mln (BOC 75 mln, MPB 50 mln and HB 28 mln), which the three major banks will match, providing a total of EUR 306 mln available to Cyprus SMEs.
Up to 12 years
The loans will be for a duration of 2-12 years, with a 2-year grace period on capital repayments. All SMEs employing less than 250 persons and an annual turnover not exceeding EUR 50 mln and or an annual balance sheet total value not exceeding EUR 43 mln are eligible to apply. In effect, about 90% of Cyprus businesses are eligible.
Holding companies and those involved in leasing and those engaged in gambling, tobacco and other offending sectors are not allowed to apply.
Applicants can use the loan proceeds to buy or extend their own premises, purchase machinery, finance research, set up or expand distribution networks in Cyprus or other EU countries and even for working capital.
Activities that have a negative impact on the environment and those involved in property development do not qualify for the loans.
Pricing
The 50% of the total loan that the EIB will provide is priced at Euribor plus 55 basis points. The EIB does not mind which Euribor is taken as the benchmark (could be 3, 6 or 12 months) as long as the base does not change.
Thus with Euribor 6 months now at 1.25%, the EIB loan to the banks will cost 1.80%. The banks will then match the EIB loan and are expected to price their loans at Euribor plus 2%, which if it was made today, would cost on average 3.35% including processing and other fees. Thus the EIB loans have a significant cost advantage compared to the average 7-8% now charged by banks to SMEs.
Other charges are expected to be kept to a minimum.
The final price will depend on the financial rating that an SME scores from the bank as well as the transaction rating that in addition to the financial strength, also includes the organisation structure and the level of guarantees provided.
Audit
One of the perquisites for SMEs to become eligible for the loans is that they will agree to be subject to audit inspections by the EIB, which will ensure that the loans are used for the purpose for which they were borrowed and the terms and conditions agreed to are upheld.
Of particular interest to business people is the clause stipulating that the pricing of the loans will not change even if in future years the financial strength of the applicant changes. With most businesses facing an uncertain future and sometimes bleak outlook, there may be an added incentive for businesses to apply to secure the favourably priced loans, safe in the knowledge that even if their situation deteriorates, other than the fluctuation in the Euribor, the loan spread will not change for the duration of the loan. (Financial Mirror)
