Sky-high returns and equally high risk from a relatively new business lending platform
Over 20% ROI on (unsecured) business loans seems too good to be true. With the majority of loans in delay or default, Crowdestor is unlikely to sustain such an ROI over the long term. Can it stay afloat at all, and prove that its business model is sustainable?
|Total Investment Volume||€52m+|
|Average annual interest||20.46%|
|Investment Fees||2% on secondary market sales|
|Who’s eligible to invest||EEA, Swiss and UK residents|
|Investment Type||Business lending|
|Auto Invest Function||No|
|Investor Protection||Provision fund|
|Website Language||English, Spanish, German|
PROS & CONS
- Deals come from a variety of, often niche, sectors and it’s often simply fun to review them – even if you decide not to invest at the end. Recently funded projects include, for example, a retirement home, an e-commerce app, or ‘delivery of medical syringes and gloves for the European vaccination program’. Interest rates are almost incredibly high, usually between 17% and 36%, and the number of deals is more than decent, allowing you to pick and choose which you like the most and yet easily create a broad portfolio.
- Crowdestor has been profitable already from its first year – quite unusual for the P2P sector, and indeed for any start-up. The profit went up from roughly €160,000 in 2019 to almost €400,000 in 2020, despite the hit the peer-to-peer lending market took during the COVID downturn. They have also raised over €0.5 million in equity from seven crowdfunding campaigns launched via their platform, and are now trading a total of 26 equity tickets – each is worth €1,400 and gives you a 0.03% share in the company.
- Crowdestor has been criticized for poor transparency in the past, but it has to be said that they have made some significant steps to improve access to key information. The financial reports are now easily available, the ‘About us’ page lists all employees, and investors now often praise the management for good communication and keeping them updated with key developments. Maybe most importantly, information about loans and borrowers is much improved, possibly better than on most P2P lending sites. You can read a comprehensive explanation behind the risk scoring methodology and review a plethora of information on each project, including a 10–15-page credit report on the borrower.
- At the time of writing, out of 300 active projects, 104 are current, 163 delayed and 33 defaulted. This means only roughly one in three loans is being repaid according to schedule, which makes up a very grim picture of Crowdestor’s loan performance.
- Not only are most loans underperforming, but it’s also uncertain how much of the capital can be recovered. Unlike most business and real estate lending platforms, Crowdestor tends to use a simple personal guarantee instead of collateral to secure the loans. A provision fund has been launched to offset some of the capital losses, but the fund is tiny – just above €400,000, which wouldn’t be enough to cover a single big default. How the fund is supposed to exactly work is also a mystery as the content of its dedicated page has been cleared – I suppose we can expect some major changes in this area.
- The first Crowdestor loan was funded in August 2018, and not a lot of projects have reached maturity since. More time is necessary to see how the long-term returns will shape and how the company will deal with the (many) recoveries.
Who is behind Crowdestor?
Jānis Timma is Crowdestor’s CEO and co-founder (along with Gunārs Ūdris). The whole team counts 16 people, most of them very young and with rather modest experience in finance. Although this is not uncommon – alternative finance tends to be a youngster’s field, it might deepen the worries about their ability to manoeuvre through the complicated recovery processes.
The platform is owned by Crowdestor Security Agent. Crowdestor has recently acquired a Czech online payments services provider, renamed Crowdestor Pay. It will serve to separate the company’s and investors’ funds (to comply with the upcoming EU regulation) but will also offer some additional perks to investors such as fast transfers and special deals.
What does Crowdestor offer?
There are three main project types on Crowdestor:
- SME projects – usually short-term business loans to small and medium enterprises
- Specialized projects – unique deals in niche sectors such as energy, forestry, show business, gaming, entertainment industry, etc.
- Real estate projects – property construction and development projects
A majority of projects are located in Latvia and other Baltic states. The loan volumes tend to be relatively low, with many projects ranging from €10,000 to just €50,000 (although bigger projects are also available, several coming close to €1 million). Specialized loans constitute over half of all opportunities (54%), followed by SME loans (28%) and real estate loans (17%). Real estate loans perform significantly better than the two kinds of business loans and are the only category where current loans outnumber delayed loans. They also sometimes come with property collateral and, in general, tend to involve lower risk and lower returns.
How much can you earn?
The average historical return stands at over 20%, but I wouldn’t get too excited about it. It’ll almost inevitably go down as more and more projects go into the recovery phase and investors start recording, expectedly high, capital losses. Nonetheless, if you’re lucky enough and avoid significant failures, you can make up to 28% p.a. (as Crowdestor advertises) or, in theory, even more as interest rates can reach 36%. You need to be aware though, of the not unlikely risk of not only making no profit but also losing a significant share of the invested capital – remember, there’s usually no collateral from which money can be recovered.
You can earn an extra 1% cashback on the amount invested in the first 180 days using this link.
Who is Crowdestor best for?
Adventurous investors with nerves of steel who like to take big risks, hope to break the bank and fully realise the risks behind unsecured lending. If you decide to invest in Crowdestor projects, you should also make sure your P2P portfolio already includes other, safer investment options and that high-risk assets are only a small addition.
How to invest at Crowdestor?
Signing up is easy. During the registration process, you’ll have to verify your identity using Veriff and define a PIN code (in addition to a regular password), which you’ll use to confirm your investments. Once this is done, you can start browsing the available opportunities. No auto-invest option is offered, but with these kinds of projects, it is highly recommended to spend time on your own due diligence, reading through the rich information Crowdestor provides before you make a decision.
A first glance at Crowdestor’s business model makes you think that it can’t work – highly risky deals with no security must eventually lead to capital losses. So far, investors have managed to offset delays and defaults and made, on average, excellent profits. It’s clear, though, that the platform is headed down a rough path, with the majority of deals soon to default. The future performance will largely depend on how the young team deals with the recoveries. But Crowdestor also has some really strong points, including profitability, transparency, good communication and a diverse and unique pool of projects. I guess time will be the judge – the next year or two will likely make or break Crowdestor’s curious business model.
P2P Market Data are dedicated to providing unbiased reviews of P2P Lending platforms and other alternative investment platforms. We are on a monthly basis collecting funding amounts from over 90 different platforms for The Monthly Funding Report.
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