Rising EURIBOR Fuels Appetite Among Crowdfunding Investors
The rising cost of borrowing is impacting the crowdfunding market, with market participants noting that the increased EURIBOR has driven businesses to seek alternative credit options. Some platforms are receiving more funding requests than they can handle, while investor appetite is also on the rise.
So far, the rising cost of borrowing has not caused significant disruptions in most Lithuanian crowdfunding platforms. The market expansion that was maintained throughout 2022 continued into the first quarter of this year. Platform managers reported raising significantly more funds in the first quarter compared to the same period last year.
The largest market player, the real estate-focused platform "Profitus", raised 70% more funds in the first quarter than a year ago (€14.59 million). According to the Bank of Lithuania, this platform accounted for 25.57% of the entire market in 2022.
In the same segment, "Röntgen" saw a 33% increase in funds raised over the year, reaching €6.54 million.
The business crowdfunding platform "Finbee Verslui" raised nearly 2.2 times more funds than in the same period last year, amounting to €6.28 million.
Amounts Pooled
Amounts mobilised in crowdfunding platforms, Q1 2023, EUR million
Source: company data, VZ
"We are receiving many more loan enquiries from small and medium-sized businesses. This reflects the growing demand for finance," says Tomas Maciulaitis, Head of Finbee Verslui, adding that demand far exceeds the supply of finance.
For its part, Heavy Finance, a platform that brings together investors in agricultural machinery, grew at a slower pace of 6.65% year-on-year, to EUR 4.33 million.
Increasing Expectations of Returns
Higher EURIBOR means more expensive credit. This encourages businesses to turn more frequently to alternative financing instruments, including crowdfunding, which does not include a EURIBOR component in the cost of borrowing.
The regulator estimates that 2,718 projects were published on the platforms last year, which is 79.29% more than in 2021. "This trend shows that crowdfunding is becoming an increasingly used alternative for business financing," the LB said in its overview of crowdfunding platforms.
"As EURIBOR and bank margins have risen, we have become much more competitive for developers, which has led to an increase in the number of bank-type projects applying for funding on the "Röntgen" platform," says Martynas Stankevicius, CEO of "Röntgen".
He is echoed by other market players. They point out that the rising EURIBOR has become an incentive for developers to look for alternatives. However, more expensive borrowing is also affecting investors' expectations of returns.
Returns on Crowdfunding Platforms
Returns offered to investors on crowdfunding platforms in Q1 2023, %
Source: company data, VZ
Depends on EURIBOR
The increase in investor appetite is similar across all platforms, ranging from 1-2 percentage points. "As in all debt markets, we are seeing about 2% higher return expectations compared to the very beginning of last year," says M. Stankevicius.
"The fact is that interest rates are rising every year, so investors' expectations are slightly higher. If we talk about larger investors, their expectation has increased by 1-2 percentage points for interest returns, and small investors too. Currently, the average return on a project is around 10%", says Viktorija Cijunskyte, Head of the crowdfunding platform "Profitus".
"The average interest rate for "Finbee Verslui" this year is 14.06%, compared to 13.71% last year.
Laimonas Noreika, CEO of UAB "Heavy Finance", says that the weighted average interest rate on the platform reached 13.27% in the first quarter and was the highest in several years of the platform's existence. He also points the finger at the rising cost of borrowing, but it is not the only reason for the record yield.
"The rise in the EURIBOR interbank offered rate was a contributing factor, but in our case the most significant contributor was the rapid growth in Poland. It was the second largest lender in terms of loans, just behind Lithuania. Polish owners of small and medium-sized farms have historically paid higher interest rates than their counterparts in Lithuania, which allows us to remain competitive with slightly higher rates," he says.
"Looking ahead, we believe that the return expectation will follow the EURIBOR trend. The markets are talking about EURIBOR stabilising or even declining in the second half of this year or at the beginning of next year", says M. Stankevicius.
Liquidity Search
"We understand investors' concerns in the real estate market and stock exchanges, but the dynamics of the agricultural sector are different," says L. Noreika.
The agricultural sector's "challenge to feed the world is becoming increasingly difficult", so he does not foresee a decrease in the importance of financing in the future and notes that "much will depend on investor appetite".
The company expects to attract more investors, aiming to increase the pace to 1,000 per month, compared to 600 per month this year. Additionally, the outlook could be improved by institutional investors.
"If we manage to conclude negotiations and a new institutional investor starts forming their portfolio on the platform this year, it will significantly impact 'Heavy Finance's' annual results," says L. Noreika.
"Finbee Verslui", aiming to meet the sharply increased demand for credit, is also seeking to secure liquidity from investors. "We are in advanced negotiations with several foreign funds regarding direct investments on our platform, and this will also contribute to ensuring liquidity," says T. Maciulaitis. The platform plans to raise funds by issuing a new bond, and it is also seeking to attract new investors.
Not Everyone is Succeeding
When discussing the deteriorating quality of portfolios, most platforms report no significant or dangerous changes.
"I can't say it's an astonishing increase, but the fact is – as our portfolio grows, so does the number of overdue loans," V. Cijunskyte explains in a VZ podcast. The CEO notes that no loans have been written off on the platform and "likely won't be," as the loans are secured by real estate.
"However, we have 4.9% of loans overdue for more than 90 days from our active portfolio. This is a very normal figure. Our goal is to keep the percentage of overdue loans under 6%," she says.
"Rontgen" reports having no overdue loans, while "Heavy Finance" notes that their portfolio of poorer-performing loans is decreasing.
"A significant positive shift has been the substantially reduced delays in loan repayments by farmers, which has given investors more confidence," assures L. Noreika.
The "Finbee" CEO also points out the reliability of their borrowers. "Even though interest rates are rising, we are receiving payments from clients even more punctually than a year ago, and the projected net return is 12.2%," says T. Maciulaitis.
Not all crowdfunding platforms are following market trends. According to publicly available company data, the default rate on the "Estateguru" platform reached 34.1% of outstanding loans by the end of March, or 100 million EUR. The amount of loans raised on the platform has been declining every month since October, with 6.45 million EUR raised in February, compared to 15.05 million EUR in October. "Estateguru's" actual return this year is 9.56%, compared to 8.62% last year.
"In the second half of 2022, 'Estateguru' implemented several important decisions, reviewed our expansion strategy, and prioritized accordingly. While we remain strong in the Baltic States and Finland, planned expansions into new markets, such as the United Kingdom and Spain, have been postponed. We will reassess the situation in the second half of 2023," says Arturas Konusevicius, CEO of "Estateguru Lietuva", in a comment sent to VZ regarding the results of the past quarter.
International Expansion
Larger crowdfunding platforms appear to have outgrown the Lithuanian market. "Heavy Finance", which has been operating in several foreign markets for some time, says that in the last quarter, it attracted the most new investors from Lithuania, France, Germany, and Spain. It also operates in Latvia, Poland, Bulgaria, and Portugal.
"Heavy Finance is ready for expansion," says L. Noreika. "In March, the company attracted a 3 million EUR venture capital investment, putting us in a favorable financial position to invest in client acquisition, strengthen the team, and even begin offering loans in another European country".
"Profitus" CEO mentioned to VZ that the company has again set its sights on expanding into new markets – it is already operating in the Latvian market and has plans for Estonia and Spain.
The Estonian "Estateguru" is not limiting itself to the Baltic States either.
Rising EURIBOR Fuels Appetite Among Crowdfunding Investors
The rising cost of borrowing is impacting the crowdfunding market, with market participants noting that the increased EURIBOR has driven businesses to seek alternative credit options. Some platforms are receiving more funding requests than they can handle, while investor appetite is also on the rise.
So far, the rising cost of borrowing has not caused significant disruptions in most Lithuanian crowdfunding platforms. The market expansion that was maintained throughout 2022 continued into the first quarter of this year. Platform managers reported raising significantly more funds in the first quarter compared to the same period last year.
The largest market player, the real estate-focused platform "Profitus", raised 70% more funds in the first quarter than a year ago (€14.59 million). According to the Bank of Lithuania, this platform accounted for 25.57% of the entire market in 2022.
In the same segment, "Röntgen" saw a 33% increase in funds raised over the year, reaching €6.54 million.
The business crowdfunding platform "Finbee Verslui" raised nearly 2.2 times more funds than in the same period last year, amounting to €6.28 million.
Amounts Pooled
Amounts mobilised in crowdfunding platforms, Q1 2023, EUR million
Source: company data, VZ
"We are receiving many more loan enquiries from small and medium-sized businesses. This reflects the growing demand for finance," says Tomas Maciulaitis, Head of Finbee Verslui, adding that demand far exceeds the supply of finance.
For its part, Heavy Finance, a platform that brings together investors in agricultural machinery, grew at a slower pace of 6.65% year-on-year, to EUR 4.33 million.
Increasing Expectations of Returns
Higher EURIBOR means more expensive credit. This encourages businesses to turn more frequently to alternative financing instruments, including crowdfunding, which does not include a EURIBOR component in the cost of borrowing.
The regulator estimates that 2,718 projects were published on the platforms last year, which is 79.29% more than in 2021. "This trend shows that crowdfunding is becoming an increasingly used alternative for business financing," the LB said in its overview of crowdfunding platforms.
"As EURIBOR and bank margins have risen, we have become much more competitive for developers, which has led to an increase in the number of bank-type projects applying for funding on the "Röntgen" platform," says Martynas Stankevicius, CEO of "Röntgen".
He is echoed by other market players. They point out that the rising EURIBOR has become an incentive for developers to look for alternatives. However, more expensive borrowing is also affecting investors' expectations of returns.
Returns on Crowdfunding Platforms
Returns offered to investors on crowdfunding platforms in Q1 2023, %
Source: company data, VZ
Depends on EURIBOR
The increase in investor appetite is similar across all platforms, ranging from 1-2 percentage points. "As in all debt markets, we are seeing about 2% higher return expectations compared to the very beginning of last year," says M. Stankevicius.
"The fact is that interest rates are rising every year, so investors' expectations are slightly higher. If we talk about larger investors, their expectation has increased by 1-2 percentage points for interest returns, and small investors too. Currently, the average return on a project is around 10%", says Viktorija Cijunskyte, Head of the crowdfunding platform "Profitus".
"The average interest rate for "Finbee Verslui" this year is 14.06%, compared to 13.71% last year.
Laimonas Noreika, CEO of UAB "Heavy Finance", says that the weighted average interest rate on the platform reached 13.27% in the first quarter and was the highest in several years of the platform's existence. He also points the finger at the rising cost of borrowing, but it is not the only reason for the record yield.
"The rise in the EURIBOR interbank offered rate was a contributing factor, but in our case the most significant contributor was the rapid growth in Poland. It was the second largest lender in terms of loans, just behind Lithuania. Polish owners of small and medium-sized farms have historically paid higher interest rates than their counterparts in Lithuania, which allows us to remain competitive with slightly higher rates," he says.
"Looking ahead, we believe that the return expectation will follow the EURIBOR trend. The markets are talking about EURIBOR stabilising or even declining in the second half of this year or at the beginning of next year", says M. Stankevicius.
Liquidity Search
"We understand investors' concerns in the real estate market and stock exchanges, but the dynamics of the agricultural sector are different," says L. Noreika.
The agricultural sector's "challenge to feed the world is becoming increasingly difficult", so he does not foresee a decrease in the importance of financing in the future and notes that "much will depend on investor appetite".
The company expects to attract more investors, aiming to increase the pace to 1,000 per month, compared to 600 per month this year. Additionally, the outlook could be improved by institutional investors.
"If we manage to conclude negotiations and a new institutional investor starts forming their portfolio on the platform this year, it will significantly impact 'Heavy Finance's' annual results," says L. Noreika.
"Finbee Verslui", aiming to meet the sharply increased demand for credit, is also seeking to secure liquidity from investors. "We are in advanced negotiations with several foreign funds regarding direct investments on our platform, and this will also contribute to ensuring liquidity," says T. Maciulaitis. The platform plans to raise funds by issuing a new bond, and it is also seeking to attract new investors.
Not Everyone is Succeeding
When discussing the deteriorating quality of portfolios, most platforms report no significant or dangerous changes.
"I can't say it's an astonishing increase, but the fact is – as our portfolio grows, so does the number of overdue loans," V. Cijunskyte explains in a VZ podcast. The CEO notes that no loans have been written off on the platform and "likely won't be," as the loans are secured by real estate.
"However, we have 4.9% of loans overdue for more than 90 days from our active portfolio. This is a very normal figure. Our goal is to keep the percentage of overdue loans under 6%," she says.
"Rontgen" reports having no overdue loans, while "Heavy Finance" notes that their portfolio of poorer-performing loans is decreasing.
"A significant positive shift has been the substantially reduced delays in loan repayments by farmers, which has given investors more confidence," assures L. Noreika.
The "Finbee" CEO also points out the reliability of their borrowers. "Even though interest rates are rising, we are receiving payments from clients even more punctually than a year ago, and the projected net return is 12.2%," says T. Maciulaitis.
Not all crowdfunding platforms are following market trends. According to publicly available company data, the default rate on the "Estateguru" platform reached 34.1% of outstanding loans by the end of March, or 100 million EUR. The amount of loans raised on the platform has been declining every month since October, with 6.45 million EUR raised in February, compared to 15.05 million EUR in October. "Estateguru's" actual return this year is 9.56%, compared to 8.62% last year.
"In the second half of 2022, 'Estateguru' implemented several important decisions, reviewed our expansion strategy, and prioritized accordingly. While we remain strong in the Baltic States and Finland, planned expansions into new markets, such as the United Kingdom and Spain, have been postponed. We will reassess the situation in the second half of 2023," says Arturas Konusevicius, CEO of "Estateguru Lietuva", in a comment sent to VZ regarding the results of the past quarter.
International Expansion
Larger crowdfunding platforms appear to have outgrown the Lithuanian market. "Heavy Finance", which has been operating in several foreign markets for some time, says that in the last quarter, it attracted the most new investors from Lithuania, France, Germany, and Spain. It also operates in Latvia, Poland, Bulgaria, and Portugal.
"Heavy Finance is ready for expansion," says L. Noreika. "In March, the company attracted a 3 million EUR venture capital investment, putting us in a favorable financial position to invest in client acquisition, strengthen the team, and even begin offering loans in another European country".
"Profitus" CEO mentioned to VZ that the company has again set its sights on expanding into new markets – it is already operating in the Latvian market and has plans for Estonia and Spain.
The Estonian "Estateguru" is not limiting itself to the Baltic States either.
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"Trečia diena" UAB, which operates the Röntgen platform, is a licensed crowdfunding platform. The platform is governed by the EU Crowdfunding Regulation and is supervised by the Bank of Lithuania in accordance with the law.