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Is crowdlending the future of small business loans?

*This article was originally written for our Swiss market, it may contain Swiss references.

Not so long ago, if a small business needed money, the owner would don their smartest suit and head down to the bank to ask for a loan. These days, there’s a more innovative and engaging way to get financing. It’s called “crowd-lending”, and it’s happening everyday in online marketplaces such as Swisspeers.ch

The concept is simple: businesses present their financing needs, and willing investors put up the money. If successful, the business receives money and then repays the loan based on the interest rate and time frame agreed by both parties. It’s an easy, transparent alternative to a traditional bank loan. 

Inyova caught up with Swisspeers CEO Alwin Meyer to find out more about this trend.

 

Where did the idea come from to start Swisspeers?

In our previous jobs, we travelled frequently to the United States and United Kingdom, where we saw the rise of platforms like Lending Club and Funding Circle. Meanwhile, small business lending volumes in Switzerland were in steady decline. We connected the dots and started drawing the first sketches of what later became Swisspeers.

 

How many deals have been done through the platform? What has been the most memorable deal for you?

So far, 250 small-medium enterprises have taken out CHF 40 Million in loans using Swisspeers. This capital came from the 1,000+ private and institutional investors who are active on our marketplace. 

My personal favourite was when e-bike sharing company Bond used the platform to finance its expansion from Zurich to Bern. On top of interest payments, investors got a free subscription to the service, and the bikes served as a sort of collateral.

 

Who is your typical investor?

We see four key groups on the platform:

  1. Profit-driven investors: This group are active risk takers. They show up when the interest rate offered by the SME is above 6%. 
  2. Conservative investors: Basically, the opposite to profit-driven investors. They go for loans with the lowest risky ratings only.
  3. Portfolio investors: These investors typically use our ‘auto invest’ feature and participate in all loans published on our marketplace. Their main goal is a broadly diversified portfolio.
  4. Impact investors: Quite a large group of our users invest only if the loan’s purpose corresponds with their own value and belief system. This might include projects for renewable energy, e-mobility or daycare centres. 

The great thing is, everyone can make their own assessment based on transparent information provided by the business.

 

Why might a business use your platform instead of getting a traditional loan from a bank? Is there a type of business that it suits?

We provide a quick and simple alternative – it’s peer-to-peer without layers of intermediaries. 

Projects that appeal to impact investors work particularly well. In general, the financing works easier if the purpose of the loan is very clear-cut. 

 

Swisspeers uses an auction method to determine the interest rate of the loan. Why is this?

Pricing on the platform is based on two mechanisms. Firstly, there’s the financial-based rating model provided by Swisspeers – this determines the price range the auction starts from. From there, it’s supply and demand – the result is the most efficient interest rate for all parties.

 

And finally, what’s your vision for Swisspeers in the future?

We want to become the ‘place to go’ for small and medium enterprises that need any type of financing. We have a vision to continuously expand the capabilities of the platform, to make it easy, simple and fast to obtain the required financial resources. With that, we want to contribute to the strength of small and medium businesses in Switzerland, and enable them to provide as many jobs to future generations as they do today.

 

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Tillmann Lang

Tillmann Lang

CEO and Founder

For many years, Tillmann has been working on the question of how to make the world more sustainable – and the role finance has in this transition. Before founding Inyova, Tillmann worked for more than 6 years at the strategy consultancy McKinsey & Company.

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