To provide a better insight to our investors about the loan originators who have joined the Mintos platform we will offer interviews with the key people of them. This time AS Capitalia director Juris Grišins talks about Capitalia’s experience with business loans.
Already for a few weeks Mintos investors can invest in small business loans originated by Capitalia. Capitalia says that there are several benefits for those who invest in these loans.
First of all, the revenue structure of businesses is much more balanced than that of private individuals. Investors in Capitalia loans can also expect a double digit net annual return. Finally, it is important that investors are helping businesses in the Baltic States to develop and grow.
Q: How did you decide to enter the world of small business loans?
A: Latvia’s economy began to recover from the financial crisis in 2010, and companies regained positive views about the future and a desire to invest in the development of their operations. In comparison to the pre-crisis period, however, banks were much less willing to support companies, because they were afraid of undertaking new risks. This bank caution was particularly evident when it came to financing for small companies. That’s when Capitalia decided to start offering loans to small businesses. We began with small loans of up to EUR 5,000, and since then we have gradually increased the sum to up to EUR 50,000 now.
Q: What is your experience in this industry?
A: I used to work as a venture capitalist, managing one of the most successful venture capital funds in Latvia. I have chaired the Latvian Venture Capital Association, and I was a co-founder of the Latvian Business Angel Network. This experience really helped in drafting the basic principles for small business loans from Capitalia. We are more efficient in providing small business loans than banks are, and this requires a fresh and alternative viewpoint.
Q: Why did you establish Capitalia?
A: Our aim at Capitalia is to offer modern, simple and fast financing for businesses. We believe that the ability of a company to repay a loan is based on its lifeblood – cash flow, as opposed to the ability to offer a collateral, as commercial banks require. Banks also have slow and unwieldy processes in evaluating loan applications. We have improved our processes so that a loan can be approved in a few business days or even faster.
Q: How many companies have received your financing, and what’s your typical borrower?
A: We have provided financing to more than 500 companies in Latvia and Lithuania for a total of around EUR 11 million. Our typical client has around 10 employees and annual revenues of around EUR 500,000. Our clients include, for example, a metal processing factory, a food retailer, and a car repair shop. We are currently issuing loans in Latvia and Lithuania and looking for opportunities to expand into other countries, as well.
Q: How do you evaluate the ability of a company to repay a loan? What factors do you take into consideration?
A: Cash flow is the first criterion. We carefully look at whether the company will be able to repay the loan on the basis of an analysis of its historical and planned revenues and expenditures. We do not finance new companies or those that have a collateral, but no stable revenues. We also carefully evaluate the reputation of the company and its owner, the market situation, the amount of time that the company has been in operation, its region, etc. There are more than 100 factors. We require personal guarantees from owners or directors for all loans, as well as a collateral for larger loans. Our methodology in issuing and supervising loans is based on the good practice guidelines of the European Investment Fund.
Q: What has been your experience with repayment discipline?
A: Our underwriting has evolved substantially to ensure a methodology that ensures that failure to repay a loan is very rare. We have had problems with this in the past, but today only one of 20 of our clients, on average, faces difficulties in repaying the loan and misses a loan repayment by more than 30 days. If we cannot reach agreement with the client ourselves, we bring in an outsourced debt collection agency. Since we have listed our bonds on the Nasdaq Baltic market, we publish our financial reports once a quarter on the exchange’s home page, and that includes bad debts. Our financial data are regularly audited, and our bond issue is carefully supervised by Nasdaq Baltic exchange and the Finance and Capital Markets Commission.
Q: Why would Mintos investors want to invest in Capitalia loans?
A: First of all, I think that business loans are more secure than consumer loans. Individuals usually have only a salary as income, while the revenue structure of businesses is much more balanced. Investors can also expect a net annual return of more than 10% by investing in small business loans we originate. There is also the issue of social responsibility in that the resources that investors invest help small businesses in the Baltic States to develop.
Q: Why is Capitalia partnering with Mintos?
A: We think that marketplace lending is the direction in which the financial sector is moving today. By connecting to the Mintos platform, Capitalia is joining this trend. We believe that using marketplace lending model in funding our loans very soon will be an important source of additional capital for Capitalia so that we can concentrate on our main skill of underwriting loans to small businesses.