LendSecured is a direct marketplace lending platform focused on agricultural lending. They have chosen this focus because they believe it constitutes the right match for the platform’s core pillar and philosophy to minimize the risks for investors. In this interview, we learn more about this specific segment of the peer-to-peer lending market with the CEO of LendSecured, Ņikita Gončars.
The story of LendSecured
LendSecured was launched in 2019 by you and your co-founder, Edgars Tālums, and offers investments in agricultural loans backed by collateral with a low LTV. How did you get the idea to launch a platform focused on agricultural loans, and why did you choose to focus on this specific business model?
I have been in the lending business for more than 10 years with Edgars and built a successful local lending company in Latvia, with more than 40M EUR issued in secured loans. Since the Latvian market has a very small (<2M) population, we started to look for expansion possibilities. At that time, 1/3rd of our outstanding loan portfolio were Agricultural loans, which were performing exceptionally well compared to consumer loans and classic SME loans.
Farmers are a different type of businessman, often it is their family business, and they are very responsible borrowers. Also, subsidies from the EU are giving additional financial support and better ability to pay for liabilities.
So, we have looked deeper into this segment and started analyzing other EU markets. And the more we investigated this sector, the more we saw that it is highly underfinanced. According to a European Investments bank’s report, the financial gap for EU agriculture is around 40 billion EUR. It is a huge problem for the EU, which banks are not able to solve because of high regulatory demands and inner bureaucracy. This is a great opportunity for crowdlending. We already saw how it happened in construction business lending, with big platforms evolving like EstateGuru, Lendinvest etc. Agriculture is the next big problem we can address and solve!
Launching a Platform During the Covid-19 Pandemic
During the last year, most platforms have seen a large negative impact due to the Covid-19 pandemic. How has the pandemic affected LendSecured? Have there been other significant challenges for LendSecured you can share with our readers?
The pandemic was not the easiest moment for starting a new platform. But we chose the right strategy, and it paid off. We have addressed the biggest fears and problems of the crowdlending at that time.
Firstly, people were afraid of scams, so we partnered with LemonWay, a French Electronic Money Issuer (EMI), that holds investors' funds in the biggest French bank – BNP Paribas. So, the funds are stored safely and segregated from the platform's own assets. Integration and Due Diligence procedures took us around 6 months.
Secondly, crowdlending was associated mostly with high-risk projects, with high LTV (>60%) and a lack of transparency. Our philosophy was – better smaller but higher quality, and safer projects. Our LTV is still lower than 40%, it is the lowest on the market. That means that even in case of defaults, investments will be recovered. And there is a very small chance to lose any capital.
And lastly, we are fully open and transparent to our investors. You can see all our team members on Linkedin. Some bloggers have already visited our office, and we are publicly publishing our annual reports and answering all information enquiries.
LendSecured Ownership Structure
Are you and Edgars Tālums the sole owners of LendSecured, or how is the ownership structure of the business? How did you finance LendSecured in the beginning?
Yes, LendSecured is owned by our company Secured Finance MGMT, which is owned by me and my partner Edgars 50%/50%.
Since LendSecured is our ambitious business expansion project, the platform is self-funded by our profits from other business activities. We are not dependent on outer funding sources. That gives us the possibility to follow a safe strategy and carefully choose the projects we publish.
The problem with many new platforms is that they are forced to rush for volume to generate revenue. This leads to risking investors' funds and publishing extremely risky projects. This is not the case with LendSecured.
LendSecured Mangement Team
What is your own background, and how did you become interested in the crowdlending industry? Who are the other management members?
We are a team of professionals in the lending industry with experience in building scoring, legal, marketing and sales procedures. Most of the team have worked together for more than 5 years, and some even more. This helps a lot with communication and getting things done.
We saw the upcoming trend of crowdlending and the opportunities it was opening. For us, living in a small EU country, technology that allows us to connect with such a huge market was a dream come true and an obvious path to choose.
Investing on the LendSecured Marketplace
Could you briefly explain what type of investment products you offer at LendSecured?
We are 100% focused on the Agricultural sector. There are three main types of projects on Lendsecured.
1 - Seasonal loans – Short term (3-12m) backed by future harvest.
2 - Machinery loans – Mid-term (12-36m) with commercial pledge of machinery.
3 - Land Mortgage loans – Mid-long term (12-48m) with 1st rank mortgage on land.
If I decide to place money at LendSecured and build a diversified portfolio, how much can I expect in net yearly return after losses and delayed payments?
Our current average interest rate is 11,5%, but by using cash-back and referral link bonuses, you can easily get up to 13,5%. Since our loans are Low LTV, even in case of default, the investment will most likely be collected in full, including interest.
How do you calculate your returns? What method do you use to decide when a loan must be written off and accounted as lost or with minimal chance of recovery? Do you use an objective or subjective way of deciding when to write off loans in the actual returns?
All our projects are collateral backed, which means that for every EUR we lend, there is an asset that can be sold, in case of default, to recover the investment.
Our lending policy is very tight, and we are planning to recover loans in full. But even in case of partial loan recovery, we have an additional layer of security – the farmer’s personal guarantee. That means that we can address his private assets to recover the loan as well.
How LendSecured Handles Risk
On your About Us-page, you state that “The core pillar and philosophy for us is to minimize the risks.” How do you turn this philosophy into practice and ensure that the loans listed on LendSecured are safe for investors to put money into? Do you view agricultural loans as having a more attractive risk profile for investors compared to other asset-backed P2P loans?
So to sum it up:
- Our acceptance rate is only 5% for all incoming applications.
- All our projects are backed with real assets and a low LTV.
- Farmers are very responsible borrowers.
- Farmers are subsidized by the EU.
- The agricultural business was the least impacted by Covid.
- Grain, land and machinery collateral is highly liquid
- Grain prices are defined by the public commodity exchange.
- Land prices are growing, and world food demand is rapidly increasing
- A guy like Bill Gates is America's top farmland owner - that says a lot! He knows how to invest.
If the unlikely event should occur that LendSecured goes out of business. What will happen to the investors’ money?
This is actually a very important question for every platform. LendSecured is currently in the process of obtaining a European Crowdfunding Service Providers License (ECSP) - a process that has just started in November 2021. So, such a scenario is included in the regulation and is called a “Continuity plan”, and LendSecured has already prepared this procedure.
Basically, what happens is that the management of a platform will be transferred to a 3-rd party, Lawyer firm or another licensed ECSP provider. Since all investor’s funds are held separately on a segregated banking account, the managing party will just collect repayments, manage the debt collection process, and distribute gains to the investors.
The future of LendSecured
What is your strategy for the coming years? Have you planned any new initiatives you can share with our readers?
Sure! We are just warming up! There's a lot of upcoming plans for next year. There will be – new markets, new investment products and much more.
Follow the news! Register on our platform and join our telegram channel, we have an active and friendly community.
If we look ten years down the road and LendSecured no longer exists: What went wrong?
That’s impossible! People will always need food, and investors will be interested in earning great returns.