How do you trust someone your money? You might think this is a complex question, requiring in-depth financial knowledge and skills in the designing scoring model.
You are absolutely right, however, there is an alternative solution if you don’t want to complicate things.
You simply can ask for collateral that will fully cover the amount of money you loaned.
This is what our new loan originator A24 is doing- only relying on the tangible collateral when making a decision to lend the money. Why not? This is a solid protection against any financial drawbacks. We talked to A24’s CEO and founder Julijs Kisils and learned how the team of experienced financial professionals decided to come back to basics and never regretted.
How it all began
Julijs Kisils was working with the local and international real estate development companies and employed for several years in mortgages department in large Scandinavian Bank -Nordea.
The banker was strolling in a park during his lunch break when met a friend. Together they started chatting about the current economic situation and crisis (it was 2008). This lunchbreak turned out very productive, and life-changing in some sense. Friends concluded that there is a niche in the crediting market and decided to open a company. The core business model would focus on lending money to anyone, who has something to pledge.
The company was founded in 2011- A24 working only with retail clients and Aksioma24 working with businesses, whose loans are presented on Grupeer platform.
The founders have contributed their own funds, investing Eur 300,000 in the business. During the first year, the company managed to grow its loan portfolio ten times reaching the volume of more than 4 million. By the end of 2018, the business has issued an incredible amount of 1500 loans for the total volume above Eur 17 Million.
The company’s motto is: “the right financial help in the right time”. This is not just words, but also the principle that differentiates Aksioma24 from competitors. The management believes that most of the businesses encounter times when external funding is vital and Aksioma24 can offer the right financial terms at a given point of time. The three pillars that the company is standing on are safety, responsibility, and experience.
The key clientele are small and medium enterprises, farmers, sole entrepreneurs and also start-ups. Basically, all businesses that are looking urgently for fast and reliable financing without the excessive bureaucracy and who know that for us as the lenders it is not important to engage in the detailed analysis of their financial statements.
The key difference between Aksioma24 and new generation fintechs is that Aksioma24 doesn’t rely on any previous financial history, profit or revenue projections or any other statistics, the most important criteria are the availability of collateral value of which exceeded the value of the loan approved.
This approach is rather old-fashioned; however, this gives the control completely to Aksioma24, and they can confidently plan their own financial goals, besides that the investors have the guarantee their money is in a safe place.
Most fintechs are run by ambitious young entrepreneurs, who didn’t experience on their own skin the financial euphoria of 2006-2007 and the crisis that followed in 2008. Aksioma24, on the other hand, employs 8 credit market professionals, who worked during the crisis in a bank and survived it. This allows maintaining a cold-blooded approach when working with credit deals. That’s is why one of Aksioma24’s pillars is Experience.
Despite the old-fashioned approach Aksioma24 are innovative in their own niche. The conservative companies, who lend only against the collateral are taking only usual assets such as real estate, cars or jewelry as a guarantee. Aksioma24 went further, they are taking as a pledge nonconventional assets such as agricultural and construction machinery or other equipment belonging to businesses. Another competitive advantage of Aksioma24 is that they started to take land real estate across Latvia as collateral among the first in the market. Latvia is quite unique, even comparing to other Baltic states because 1/3 of all inhabitants live in the capital city Riga and its regions. Majority competitors only take as a collateral real estate in Riga. Aksioma24, on the other hand, is seeing potential in less populated areas, where other 2/3 of the population is living, as they see it as a stable market and this is where one of the most promising timber industries is growing. No other competitor can compare with Aksioma2424 in the range of evaluated collateral.
The recipe for success
One of the wisest decisions that the management made was back in 2015 when they decided to start lending to agricultural businesses all across Latvia against collateral. Currently, Aksioma24’s portfolio consists of more than 10,000 hectares of farming and forest land. The value of this land has proved to be stable across time.
Aksioma24 are only working with companies based in Latvia. This decision is based on the nature of their lending operations, as for Aksioma24, it is important criteria in risk management – to be 100% sure that they will be able to retrieve the funds against the collateral. However, it doesn’t mean the businesses operate solely on Latvian territory- many of them have offices abroad or are working on export markets.
Besides the collateral, Aksioma24 is evaluating the business model and reputation of the founders. The business plan has to be very determined, as the funds are expensive, hence they give money to companies with ambitious goals and are likely to return the money back.
Despite the low efforts in a marketing campaign, Aksioma24 has built a network of businesses that they are cooperating. This has built a good reputation and entrepreneurs recommend it in their circles. This results in 10-15 new business clients a year.
The track record is impressive – Aksioma24 has proved itself successfully lending to various industries ranging from timber companies, farms, international trading companies to hotel businesses and many more.
Sometimes it is better not to reinvent the wheel and improve the old methods after all the business can always rely on the collateral and effectively plan its cash flow. And for Grupeer investors this means that this will bring almost a risk-free return.