Small loans for regulated professionals as new defensive asset class

FRANKFURT - According to the company's founders Soraya Braun (l.) and Lorenz Beimler, the Frankfurt-based fintech CAPTIQ offers an asset class with a highly attractive risk profile that has a very low default rate and an attractive return at the same time: via a securitized ABS structure with an investment grade rating.From here on, the company's unedited announcement follows:

Doctors, engineers, tax consultants and lawyers - professions that require membership of a chamber of commerce - are highly sought-after customer groups for banks and investment advisors. Especially when it comes to selling investment and pension products. When it comes to financing, the 'regulated professions' also enjoy the aura of the 'safe bank'. This is confirmed by their creditworthiness - default rates for these professional groups are historically at a record low level, averaging 0.29% p.a.. And yet: Applications for small loans of less than 250,000 euros are often rejected by traditional banks because the amount of work involved in checking a loan is disproportionate to the return - which is also due to the fact that the lending process in the business customer segment of many banks has hardly been digitized to date.

Alternative online financing is also largely inaccessible to these professions, as the vast majority of these regulated professions are not formed as corporations and therefore do not prepare balance sheets. Without a balance sheet, however, there is no credit there. P2P financing platforms, in turn, are not geared to the requirements for loan amounts and the long terms. These borrowers who need small loans are also hardly reached by development banks, leaving this attractive segment underserved.

This has created a highly attractive market niche that continues to grow and yet is still treated stepmotherly. The annual financing requirements of regulated professionals with volumes of less than 250,000 euros are currently around 8 billion euros per year in Germany.

CAPTIQ has addressed this niche and developed a business model that not only addresses the unmet need, but also engages the players who have an interest in the long-term relationship with this customer group: Banks and consultants.

Key to the business model are an automated credit rating model and a B2B platform that simplifies the granting of loans, e.g. for setting up a medical practice, an engineering firm or a law firm. CAPTIQ offers rating-based financing at market rates ranging from 10,000 to 250,000 euros. In view of the overall conditions, the interest rates offered are on a par with those of competitors, even compared to the conditions offered by development banks, and with a fully digitalized loan decision within one to two working days, they are available much faster.

Established financial service providers are involved in the sales process. The advantage for banks: 1. low structural costs due to the completely outsourced lending process, 2. the loan does not go on the balance sheet, 3. the customer is retained. Independent financial advisors can use the financing tool, as they know it from areas such as real estate financing, to offer their customers their own solution without losing the customer to the financing bank.

The loan is issued by a so-called German fronting bank. The disbursed loans are in turn refinanced in securitized form via institutional investors such as pension funds or custodian A-managers. A bearer bond with a ten-year term and a net coupon of 2.60% p.a. is currently being issued.

The bearer bond received an investment grade rating (BBB- restricted) from Creditreform. Furthermore, IHS has a 10% default guarantee, a portion of which is contributed by CAPTIQ itself ('skin in the game'). The bond is thus the first by a German alternative financing platform to feature an investment grade rating. In May of this year, the lending platform Creditshelf had placed a first tranche of its non-rated Loan Fund bond. Creditshelf says it is aiming for an average default rate of 3.00% for its loan portfolio with German SMEs. An annual yield of 5.00% is envisaged for the bond, reflecting the increased default risk. The current yield of domestic investment grade bonds with a remaining maturity of more than four years has ranged between - 0.30% and - 0.65% in the last six months.

For safety-oriented, long-term investors, CAPTIQ-IHS therefore represents a particularly attractive asset class in the current low-interest environment.

Soraya Braun and Lorenz Beimler founded CAPTIQ in 2017. The two young entrepreneurs developed a business model from a project work at the finance department of Frankfurt University, for the implementation of which they convinced renowned professionals from the international financial sector and won them as investors and advisory board members.