The purpose of the establishment of the Cyprus Enterprise Development Organization Law 2026 is to improve the financing access for micro, small, and medium-sized enterprises (SMEs) and startup companies in the Republic of Cyprus.
Therefore, the CBDO does is that it creates a dedicated public law entity operating under the general supervision of the Ministry of Finance, governed by a board of directors, to drive business development financing.
The legislation mentions that its purpose is to address financing deficiencies rather than compete with financial institutions. More importantly, Article 6 explicitly permits joint lending with financial-sector entities and guarantees supporting bank lending.
- What the new law does
The aim is that CBDO should intervene where the private financial market does not provide sufficient financing to particular sectors or categories of businesses and in that cases it’s the where public law entity should provide financing solutions, so as to solve any market failures. The law expressly states that the organisation is intended to address identified market failures.
The main facilities that the CBDO may provide are the following:
- direct loans and other credit facilities to eligible businesses;
- co-financing, with banks or other financing institutions;
- guarantees supporting loans granted by banks or other financing providers;
- grants or funds;
- business advisory and skills development programmes, including strategy, financial management and operational efficiency;
- financing through investment funds and other investment vehicles providing equity and quasi-equity to SMEs; and
- mechanisms facilitating the flow of EU funding into Cypriot businesses.
- The main advantages for Cyprus companies
- Easier access to bank finance
Whereas an SME is seeking to borrow from the bank the amount of €1 million as an investment loan, the bank might consider the project the SME is entering to be a commercially attractive one, however the bank might have to reject the SME from obtaining the loan because the borrower has insufficient collateral, limited operating history or is a relatively high risk.
In that case, the CBDO could potentially provide a guarantee to support the bank financing of the SME. As a result, the bank’s credit risk is reduced, potentially making the transaction financeable that would otherwise be rejected.
The legislation specifically permits guarantees for loans provided by financial institutions.
For Cyprus, this could be particularly important because SMEs frequently have viable businesses but relatively limited collateral or balance-sheet capacity.
- Financing gaps rather than replacing commercial banks
An important feature of the law is that the CBDO is explicitly supposed to address market failures.
Every four years, the board of the CBDO must investigate the weaknesses that financing marker are facing and identify sectors and categories of businesses for which banks and other providers do not supply adequate financing.
- Equity and quasi-equity financing
The CBDO is able to establish, participate in or invest in investment funds and other investment structures whose principal purpose is providing equity and/or quasi-equity to SMEs, principally through investments in securities of unlisted companies.
- Better utilisation of EU funding
One of the CBDO’s statutory purposes is the utilisation of European funds and participation in European financial instruments.
It can also act as a financial intermediary facilitating flows of funds from EU organisations, subject to a Council of Ministers’ decision.
This could allow Cyprus to combine domestic resources with European instruments rather than relying primarily on stand-alone national schemes.
Economically, this creates the possibility of financial leverage: €1 of public resources does not necessarily need to translate into only €1 of financing. Guarantees, co-financing, investment funds and EU programmes can potentially mobilise substantially greater private-sector financing.
- Support for digitalisation, innovation and the green transition
The statutory purposes expressly encompass entrepreneurship, competitiveness, innovation and the digital and green transition.
This suggests that future CBDO’s programmes could be particularly relevant to companies investing in areas such as energy efficiency, renewable energy, digital infrastructure, automation, technology and innovative business models.
- Safeguards and restrictions
It should be pointed that the legislation should not be interpreted as a means whereby an SME can immediately approach and demand a loan or guarantee from the CBDO.
According to the legislation established loans, guarantees, grants and advisory programmes that will be granted are to be provided through specific schemes and subject to the conditions of those schemes.
Further, the law incorporates EU requirements. It expressly refers to Regulation 651/2014 and the EU Regulation 2023/2831.
There are also credit-risk controls. For example, loans and other credit facilities cannot exceed 20% of the amounts the CBDO intends to deploy during a programming period.
This is particularly revealing. It suggests that the model is deliberately designed so that the CBDO does not become predominantly a conventional direct lender. Guarantees, co-financing, funds and other instruments should have an important role.
- The financial capacity of CBDO
The Republic of Cyprus is to provide the CBDO with an initial capital of €60 million.
The CBDO may, with ministerial approval, borrow from European and international financial institutions as well as credit and financial institutions in Cyprus and other EU Member States. Its borrowing ceiling is to be approved for each programming period taking into account its financial sustainability, own funds and liabilities.
The Republic may also, exceptionally and subject to State-aid rules, guarantee interest and/or principal on borrowings undertaken by the CBDO, where justified by its strategic priorities.
- Interpretation of the biggest economic benefit
The biggest potential benefit is not simply that Cyprus has created another source of loans but the possibility of creating a permanent mechanism connecting Cyprus government resources and EU funds to Cyprus-based SMEs.
For a Cyprus SME, the law potentially creates five major benefits: better access to credit, credit guarantees, grants, equity/quasi-equity capital, and improved access to EU-supported financing, supplemented by business advisory support.
For the Cyprus economy, however, the more fundamental innovation is the creation of an institutional mechanism designed to use public resources to mobilise private financing where identifiable market failures exist, rather than simply replacing commercial-bank lending.
The content of this article is valid as at the date of its first publication. It is intended to provide a general guide to the subject matter and does not constitute legal advice. We recommend that you seek professional advice on your specific matter before acting on any information provided. For further information or advice, please contact Andrea Karageorgi, Associate at our Nicosia office, via tel +357 22447777 or email andrea.karageorgi@kyprianou.com