Baltic business financing non-bank lender Capitalia has been with Mintos for more than two years. It might not be the largest loan originator on Mintos, but it certainly offers some of the most competitive interest rates to investors — up to 15%. With the company being among the first loan originators on Mintos to offer the opportunity to select loans according to risk categories, we felt it was the perfect moment to find out more about the company’s performance and plans for the near future, and invited Juris Grišins, CEO of Capitalia, for an interview.
Since joining Mintos in 2015, how much has your business grown?
With the help of Mintos, we have managed to double the size of our business. Mintos allows us to release capital and concentrate on doing what we know best – arranging financing for companies, as well as evaluating and monitoring their business performance.
How has your experience with Mintos been so far? What percentage of your loan portfolio has been funded through Mintos?
We are very happy with the refinancing opportunities that Mintos provides us. At the moment, we are currently funding about 50% of our loans through Mintos. However, we are looking to increase this in the near future. Currently, we are in the process of evaluating how we can offer investors on Mintos our innovative financing product for merchants – point-of-sales (POS) loans. With this product, once the loan has been issued, we receive money from every sale the client makes via a credit or debit card.
Who are Capitalia customers and why are they borrowing money?
Capitalia provides capital to small and medium-sized businesses (SMEs) in situations when bank financing is not available or suitable. As a result, we don’t replace, but rather complement, bank loans. Companies use our financing for seasonal working capital needs, unexpected costs, purchase of equipment, investment in software or employees and other needs. Our typical client is a company with a turnover of around half a million euro and about 10 employees.
What sets Capitalia loans apart from other loan originators on Mintos? Why would investors want to invest in Capitalia loans?
Capitalia focuses on offering investors loans without the buyback provision. Therefore, by buying a share of our issued loans, investors co-finance loans to small and medium-sized businesses together with us. Hence, we believe we are able to offer a more genuine form of crowdfunding than most other loan originators. We also aim to provide investors with more detailed information on each investment case so they can really feel that their capital is not a simple consumption loan, but instead a much-needed resource that helps SMEs in the Baltic States grow.
Do you plan on adding more loans to Mintos in the future?
Yes, we hope to double the amount of loans we place on Mintos by the end of 2018.
Capitalia is the first and only non-banking business lender on the Baltic stock exchanges. How did you achieve this?
Indeed. There are many local and international consumer lending companies in the Baltic States. Those business models rely heavily on marketing and technologies for scoring. Our background, however, is from the venture capital industry and our decision-making policy is human-driven, not technology driven. As a result, we believe business financing is a more difficult niche to scale and grow than traditional consumer lending. Since we started operations in 2010, we have learned many expensive lessons on what to do and what not do when lending to SMEs. Slowly, but steadily, we have grown our operations across all of the Baltic States and have become the leading non-bank provider of financing to SMEs in these countries. It is only a natural step in our evolution that we have listed our bonds on the NASDAQ Baltic stock exchange to ensure liquidity and transparency to our investors.
You have said Capitalia plans to focus and strengthen its operations in existing markets. How will you do this?
We have a long-term plan that we are implementing. Part of this plan is to simplify our product range, which is something we have already done in Latvia and Lithuania. Next, is to expand our financing offer to include all alternative financing. That includes arranging business angel and venture capital financing for our clients. We have also simplified and automated the process of issuing finance to smaller businesses, while increasing our focus on working with larger companies that require longer-term expansion capital.
Do you think Capitalia will eventually expand its services into more countries?
We don’t expect we will be ready for that in the next 3-5 years. There is a lot more to accomplish in the Baltic States, and we are just getting started.
In the second quarter of 2017, Capitalia reported year-to-date revenue of EUR 648 000, which is an increase of 52% compared to the respective period in 2016. In this quarter, Capitalia also made EUR 41 000 in profit. Do you think you can continue this type of growth?
Although we have had a good growth track record, this measure is not the key driving force. Growing is easy. Growing well is hard. We aim for balanced growth that will allow us to both provide a return to shareholders and develop the company at a steady rate. We have seen many cases where growth that occurs too quickly can “shock” a company, as it is unable to cope with the organizational, procedural and risk control challenges. At the same time, in markets like Estonia, we have just started and there is a large opportunity for expansion that we aim to achieve over the next years.
How do you see Capitalia positioned in the lending market? Do you feel the competition is tough?
Competition is easy only for monopolies. We have to constantly define our market position in reaction to what commercial banks, governmental agencies and other non-bank financing institutions are doing. Nevertheless, over the years, we have very clearly understood our market niche and competitive advantages. For example, one thing that differentiates us is that we see our role not just in providing financing to businesses. With our tools, resources and mentoring, we also help companies with valuable advice to help them grow their business.
Where do you see Capitalia in five years?
We aim to be the primary source businesses in the Baltic States contact if they need financing outside of banks.