Innovative debt strategies for business survival

Thursday, 24 October 2024 00:20 - - {{hitsCtrl.values.hits}}

By Michelle Therese Alles

The importance of innovative strategies came under spotlight at a recent seminar titled “New Approach to Credit Evaluation”, and “Creative Debt Restructuring for Business Survival”.

Organised by TW Corporate and conducted by former Merchant Bank of Sri Lanka and Finance PLC (MBSL) CEO Gamini Karunathilake, and UNIDO trained Restructuring Specialist and former MBSL PLC DGM A.M.A Cader, the seminar provided valuable insights on reshaping financial strategies to navigate economic challenges, helping bridge the gap between traditional practices and the evolving demands of the modern financial landscape.

In his address, Karunathilake emphasised the growing importance of effective credit evaluation in today’s financial sector. “Effective credit evaluation is not just a formality – it’s essential for minimising risk and ensuring the sustainability of lending operations.” He stressed that the success of a bank’s lending operations hinges on its ability to properly assess and manage credit risks. “Conventional credit evaluation models are no longer sufficient to assess the potential of businesses struggling with current economic challenges,” he stated. “Today, lenders need to adopt a broader perspective that takes into account a company’s adaptability and potential for innovation.”

Karunathilake stressed the importance of credit appraisal, explaining that, “It’s not merely about approving loans; it is about structuring them in a way that reduces exposure to risk.” He also added that once loans are disbursed, credit monitoring becomes key. “Effective monitoring requires ongoing communication and proactive measures to avoid defaults and ensure a smooth recovery process.”

Cader urged businesses to take a proactive approach to financial restructuring, particularly in the face of rapidly evolving markets. “Pandemic-induced uncertainty is just one issue. Outdated business models and inefficient balance sheets can seriously hamper a company’s ability to thrive,” he noted, adding that businesses should regularly assess their financial health to avoid further distress.

He stressed the importance of a holistic restructuring approach. “Businesses must realise that restructuring isn’t just a last resort – it’s an essential tool for long-term stability. Unfortunately, many companies lack awareness of the legal and financial frameworks that can support them during restructuring efforts.”

One of the most critical points raised during the seminar was the need for optimising balance sheets. “Many businesses are unknowingly financing capital losses. Inventory overstocking, misaligned supply chains, and improper purchase pricing have all contributed to severe capital erosion,” said Cader.

Both Karunathilake and Cader emphasised the importance of looking beyond traditional methods to more creative, flexible solutions for long-term sustainability. From refining credit evaluation models to embracing holistic restructuring practices, their message was clear: companies that take proactive steps to restructure their finances and optimise their operations will be better positioned to stabilise, and eventually thrive.