Alternative financing will play a vital role in the future of the world’s economy

Alternative finance is here to stay

Marek Pärtel, Co-Founder & CEO of EstateGuru

Life has patterns and it’s enormously important to find yours. Everything will fall into place once you do. My mission in life over the last six years has been to help entrepreneurs who own small and medium-sized companies to realize their plans and allow people to gain financial freedom by investing in property-backed loans.

It all began in 2008 during the last big financial crisis. It may not have been comparable to the current one regarding its reach and impact on the planet, but it nevertheless had a far-reaching effect on the financial world and how financing works. I experienced this crisis very deeply and personally. Like most other entrepreneurs back then, I lost almost everything I had at the time. With the financial crisis brought on by the American banking industry, our local banks stopped lending and refused any form of mutually beneficial cooperation. This was unexpected as they stopped financing almost any business.

The only way to survive and save your assets in this half-apocalyptic world was through cooperation with private investors. This was the stimulus needed to create a platform powered and united by private investors. Around five years after the crisis of 2008, while all the loans together with returns had been paid back to private investors and the first property financing platforms had been established in the USA and the UK, the idea had reached maturity and EstateGuru was born. Its purpose was to help realise business plans and dreams and to help entrepreneurs and private investors like myself.

I am very proud of what we have achieved so far. I’m especially happy because my idea has inspired and helped so many businesses in Europe. More than that, our company and our people have been trusted by more than 45 000 investors across the globe. They are part of the hundreds of entrepreneurial success stories realised thanks to EstateGuru. We are already helping businesses in six countries and more than one million investments into property-backed loans have been made through our digital platform – one couldn’t even dream about this in 2013.

EstateGuru’s business model is to finance projects which have solid collateral, using first-rank mortgages, which is the most straightforward and secure type of funding in real estate lending.

Real estate is something you can see, touch, experience and feel. And people always need a place to stay, a place to live. Even if they don’t travel and go out for some time. They still need a home on this planet. At the same time stocks have a largely emotional value, you either believe in the business model and the team or you don’t.

Our stress tests show that our investors’ outstanding loan portfolios have a sufficient buffer to overcome these hectic times. Our analysis proves that our investors would only start losing the principal of their investments if the default rate of the portfolio is more than 30% and we then sell the collaterals for less than 60% of their valuation. To date, our default rate is about 6% and we have recovered almost half of defaulted loans at a return of 10,4%. The business model of EstateGuru is geared to keep delivering for our investors even during difficult times.

We take risk mitigation very seriously and that is why our historical LTV has remained below 60%. Furthermore, most of our loan collaterals are related to the residential segment, where the negative effect will be the lowest, as living spaces remain a primary need for humans. We have been and will remain conservative in making credit risk decisions. Our risk team is making adjustments to the conditions of new loans on a daily basis to be aligned with the economic situation and outlook. As shown by the previous economic crisis, even if real estate prices drop in the short-term, they eventually rise again. Furthermore, this is not a crisis of the real estate market specifically.

Marketplace lending as a business model has proven itself over ten years of existence; the sector is growing rapidly and adding liquidity to the economy during complicated times. The sector will be stronger after the crisis. Different studies show that the share of alternative financing will increase both during and after the crisis. This is confirmed by the acute interest in our loans shown by institutional investors. EstateGuru has all the possible prerequisites for becoming the funding channel for EU institutions’ credit lines to help SMEs.

To sum it up. Our goal is to be the leading property lending and property-backed investments platform in Europe in terms of quality, stability and technological innovation through economical cycles. I encourage you to come on this journey with us and we promise to protect your capital and create balanced real estate investment opportunities across Europe with the utmost care during these turbulent times.

Thank you for being with us and changing the world for the better!

Marek Pärtel