Inspiration / The problem your project solves

COVID-19 pandemic and measures taken to fight it such as travel bans, business lockdowns and quarantine have not been experienced by modern society. Many of Small and Medium Enterprises (SME’s) were forced to halt their activities or saw significant reductions in revenues (e.g. restaurants, dentists, travel agents, hotels). Many of these businesses have strong business fundamentals but are facing a temporary liquidity shortfall and cannot pay invoices to their suppliers. To add to the complexity, lenders are also unwilling to lend them given the high uncertainty of the situation.

If a business becomes insolvent, it has at least the following repercussions on the economy which can easily translate into a wider problem through second-round effects:

  • Outstanding invoices will likely not be paid
  • Any future business will be lost
  • Replacing the buyer may be difficult (or impossible), costly or timely

Coupled with a general decrease in economic activity this will very likely have a domino effect where an insolvency of one SME leads to further insolvencies of its partners and may even spill over to businesses that are not directly affected by the pandemic. Hence, it is important to provide support to each member of the supply chain.

Most schemes introduced by public institutions target helping businesses to serve their existing debts, thus, our proposed solution that helps paying other business expenses (e.g. rent, paying suppliers) is very relevant. Also, government aid measures may be less effective due to bureaucracy: a business may not fall under eligibility criteria, financing may not be substantial and getting it may take longer than a business can afford.

What it does / The solution you bring to the table

“Bankera Business Care” help SMEs that are fundamentally strong and have good long-standing relationships with their partners by providing short-term financing to cover their liquidity needs.

“Bankera Business Care” brings together both parties of the distressed contract: the buyer who faces financial shortfall and the supplier. They pledge a double-guarantee of the loan: in a typical case, 50% is guaranteed by the buyer and 50% is guaranteed by the supplier. Bankera talks to both parties and can get a full picture to check if the supplier knows its buyer well enough to guarantee for the loan (this eliminates information asymmetry problems). The supplier has an interest in the buyer surviving (so that business relationship continues after the pandemic) and is willing to repay 50% of the loan amount in case the buyer doesn’t make the repayment. Even if the buyer goes bankrupt, losing 50% of the outstanding amount is better than losing 100%.

In addition, we offer flexible repayment (the borrower can plan the repayment schedule themselves). That means a struggling business can be sure that that they will not have to make any repayments during the quarantine and can repay the loan once the business is back on its feet.

What are the differences vs other financing solutions:

  • Government or EU-wide financing: temporary measure; may not fall under eligibility criteria; bureaucracy and slower speed
  • Loans from credit institutions: mostly collateral-based; mostly locally-based (a travel agency from Lithuania would find it hard getting financing from a bank based in France)
  • Conventional factoring: we use the guarantee from both parties; we talk to both the buyer and the lender, thus, minimizing information asymmetry

Loan specifics

  • Eligibility: all SMEs registered in the EU
  • Loan amount: €1.000-250.000
  • Interest rate: from 1% monthly
  • Loan maturity: 1-36 months
  • Time to get a loan: from 2 hours
  • Flexible repayment: you make the schedule and make no repayments during the lockdown

How we built it / What you have done during the weekend

Our team members are people behind successful FinTech companies Bankera, Pervesk and SpectroCoin, so we have the know-how to launch a financial product such as Bankera Business Care. We are building this solution on top of our existing Bankera infrastructure which already supports payment accounts and other necessary features for a financial business.

  1. The landing page to provide main information about Bankera Business Care link.
  2. Questionnaires to collect necessary information from both parties (borrower and guarantor).
  3. COVID-19 specific risk model, to assess: geographical risk; industry-specific risk and business-specific risks. The model also considers the likelihood of business survival if specific measures will stay in place for different period of time.

The solution’s impact on the crisis

SMEs are the engine of the economy and workforce, employing 66% of the workforce in the EU (94 million people, 2017 data) link and making up 99% of all registered enterprises in EU countries link (2015 data). Helping such businesses will definitely reduce the economic damage caused by quarantine measures on European economy.

Challenges we ran into

Estimating COVID-19 related risks for businesses and differentiating it by regions (intra- and inter-country) as well as different industries (for example, country data is rather easy to come by but getting more granular data is difficult).

Accomplishments that we're proud of

We have developed a new financing solution to struggling businesses around the EU that incorporates:

  • Double-guarantee of two business partners: a buyer and a supplier
  • Credit risk model that takes into account COVID-19 related risk factors
  • Flexible-repayment (repayments can be made after the quarantine)
  • We provide services to businesses across EU (not just locally)
  • We don't require collateral since businesses are already troubled

The solution developed is not just theoretical, it can be deployed to supplement current Bankera offerings.

What's next for Bankera Business Care / The necessities in order to continue the project

As the MVP consists of the Bankera Business Care loan application process and specially COVID-19 risk assessment based on geographical, industrial and businesses specific risks related to the pandemic, we would apply this risk assessment tool for a wide range of Bankera business clients to identify potential financial shortfalls and offer them Bankera Business Care solution.

If this solution proves attractive to SME’s, we would be delighted and ready to bring the “Bankera Business Care” to practice. Increased awarness of the product, thus, would be immense help to the project.

The value of your solution after the crisis

While our model is developed as a response to the COVID-19, the product will be offered even after the lockdown is over. The principle would remain the same: financing with double-guarantee from a buyer and its supplier and flexible repayment. In the long-term, we aim to offer this product together with ordinary loans, so that businesses could choose which option to use.

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