When the bank says no: How FundingPartner created a new lending alternative
Even viable startups struggle to find money. But with crowdlending there is plenty of funds to go round! Read how they do it!
One of the hardest parts of being a start-up or small business is funding. You can ask for a loan, but despite being a thriving business, it can be denied and denied again. Many banks find it too complicated, or too risky to lend money to companies with little or no equity. When the banks are too inflexible in their stance, that is when borrowers bring their business idea to FundingPartner.
This is where crowdlending comes in
How can you lend money to businesses, when banks can’t?
"We do a more thorough risk assessment and increase the interest when the risk is higher," says Geir Atle Bore, CEO of FundingPartner.
FundingPartner mediates loans between private investors and small and medium-sized companies through its digital lending platform. This is what is typically referred to as crowdlending.
"Most lenders are ordinary private investors. But we also have small companies who want to invest. We are the intermediary between those investors and borrowers."
A real world example of how it works
These profitable, small and medium-sized businesses, are not getting the funding they need from traditional sources. Geir Atle gives an example in the real estate industry, and how difficult it can be to get a loan if you build properties but nothing is sold before you start building.
Let’s say you are building 10 flats, then the bank may require you to have pre-sold seven out of those 10 so there is no risk to them and you can cover the loan. But FundingPartner performs a risk and credit analysis and can provide loans without property being sold, or just four out of the 10 pre-sold. They put more analytics into each case so they know what the risk is and adjust the interest rate to reflect that risk.
“We target segments that can be riskier, but with our model, we can accept this and ensure that investors face very little risk or at least are compensated for the risk through higher interest rates.
“We focus on being flexible and fast, and can often mediate loans in just a few days!”
Several hundred investors in one loan
But if it’s just providing borrowers with loans, what makes it that different from a bank? Well, there can be 200-300 different investors involved in any given loan, many of whom give varying amounts of money. Just because an investor doesn’t have lots of cash, this shouldn’t preclude them from investing in a good business. Crowdlending is a great way to spread risks and investments.
"The investors are ordinary people like you and me. If they invest in the stock market, they need to accept that the market is about all time high now, so it’s risky compared to the potential return," Geir Atle says.
"We only get a 1% cut from the investors and the investors get the rest of the interest paid. For borrowers, they can get loans in as little as 10 days. Win-win!"
Onboarding must be digital and automatic for the process to work
When handling a large number of users on the platform, some of which can invest as little as 1000 NOK, it goes without saying that profitability requires a large volume of users and automation in handling them.
"The margins are small, and it wouldn’t work if the process of onboarding lenders and borrowers was manual," Geir Atle says.
On a platform with over 9,000 investors so far and growing, handling new loans and investors must be near to automatic. Onboarding experiences including signing people up, checking their backgrounds, and connecting them with other clients would never be cost-efficient without the tech they have now.
Geir Atle says they do not have time for manual onboarding and the goal is “for the entire process to be 100% automated.”
FundingPartner know their clients are legally sound
For investors and borrowers alike, FundingPartner uses Signicat to prove identification and signing with BankID. They use the Signicat Sign Portal when documents need to be manually signed, and they use Know Your Customer (KYC), Anti-Money Laundering (AML) controls.
Ensuring their clients are legally sound and certifying that they do not launder money or finance illegal activities is of utmost importance. With these checks, FundingPartner can potentially pull the emergency brake if it looks too good to be true, which protects them and their other clients as far as possible.
This has helped move the business forward so it is financially sound.
"Without using Signicat and signing with Bank ID, we would have to ask for a client to be physically in front of us with their passport to prove their identity! That’s not always feasible as it is incredibly time-consuming and would result in loss of both money and patience on all sides."
"While there can still be time constraints, we would not be able to do what we do today without this digital onboarding.”
When you manage the crowd, the problem of funding is reversed - not enough business to invest in.
"A big challenge for us is to find companies that want to borrow money through us," says Geir Atle.
"We have so many investors today just waiting to invest in a loan project, but they need borrowers to make that happen."
Geir Atle sees this changing as they hope to expand their crowdlending platform to Sweden and Denmark.
"The crowdlending industry is developing fast in those countries as there is incredible interest."
Looking to the future, Geir Atle says he sees cross-border opportunities between Norway, Sweden and Denmark for both investors and borrowers. As interest in crowdlending increases, so too does the potential for investors, borrowers and for FundingPartner.
"We aim to bring together borrowers and investors, and create the opportunity to grow for everyone."
What is the best part of the impact you’ve had, for you?
"It’s when I see the hundreds of jobs we’ve helped make possible," says Geir Atle Bore, CEO of FundingPartner.
Visit fundingpartner.no for more information