What Is Flender
Flender is the Irish start-up founded in 2014 by Kristjan Koik, Oliver Cavanagh and Jeremy Davies. Except for Oliver Cavanagh, who left the company in 2019 (from publicly available information) the remaining 2 founders stayed within the company and are currently acting as CEO and CFO respectively. In the world where new crowdfunding companies without any added value emerge very often, Flender is indeed a unique platform connecting lenders and businesses via simple website and standardized due diligence process.
Why Is Flender Unique
Personally, what I like about the company is that they are really bringing innovative aspects to its sector. Flender’s purpose isn’t to serve as the intermediary between companies providing loans, borrowers and potential investors like Mintos or Grupeer. They are serving as the platform matching investors/lenders and established businesses. They provide traditional business loans mainly to increase the production capacities and therefore, their main competitors are regular banks. I like the enthusiasm and I like the way of challenging the big players in the segment where big players dominate.
What’s the main competitive advantage is that everything is online. Lending through Flender matches lenders with approved borrowers in a safe environment and creates legal contracts between those parties. The second competitive advantage is that Flender has almost 5,000 investors who are ready to invest in the campaigns and thus the required amount can be collected very quickly.
Flender, as intermediary obtains legal documents from businesses together with past accounting records and future prospects and if the due diligence process (affordability, creditworthiness checks and cash flow analysis) suggests the business is solid, it’s posted to Flender’s website. Then, almost 5,000 investors can study the background of company, its financial records, purpose of the loan and offered interest rate and decide, whether they want to invest in this campaign or not. After the campaign is filled, the offer is sent back to the business and if they approve the conditions, loan can be drawn. Repayments are always done on a monthly basis (both principal and interest).
To recap – Business can go to the bank, fill a bunch of papers, deliver all the records they have, wait a few weeks for a final verdict and then wait again to actually get the money. If a business is small, new or it cannot provide sufficient collateral, no bank will provide financing. Via Flender, they send the documents online, wait for a screening process for a few hours and if the campaign is funded, they can immediately have resources in 1-2 business days. And all of that with competitive interest rate.
I also like that deposit by debit card is possible without any additional fees. This is very important for me as it almost completely eliminates cash drag as I can deposit only the amount I wish to invest in particular loan right after the campaign starts. On most platforms this is not possible, so I usually have to deposit more money at once and wait for a good opportunity with money just sitting there and not earning any interest. On Flender, I receive an e-mail about new campaign and if I’m happy with the offer I can deposit money instantly.
Strengths And Weaknesses
Flender serves as intermediary for loans provided to Irish companies which is an opportunity to diversify your crowdfunding portfolio outside of mainly Baltic area to politically and financially stable country with increasing importance in the European Union. Very few such opportunities for investing in the Irish loan market exist.
The company offers its own services of due diligence process and being an agent between investor and borrower and is using a third-party agency for debt collection in case of default. This means that most of the time you are dealing directly with Flender.
I consider Flender’s main weakness to be no available financial information. It is not publicly known even if the company is audited by external auditor or not. Moreover, I didn’t find any Facebook group where investors are grouped and are discussing the latest development. This is probably because there are only around 5,000 investors, which is much smaller number compared to other crowdfunding platforms.
As collateral, most of the time personal guarantee of the business owner is used. There is no buyback guarantee from Flender. Even though personal guarantee is generally accepted collateral in the industry, it does not mean 100% of your money if safe.
Last but not least Flender doesn’t offer secondary market yet, meaning when you enter the opportunity, your capital is tied in the project for up to 3 years without any chance of early exit. To be honest all loans have monthly repayments of interest and principal which means that you are collecting the cash regularly.
What Are The Risks
Loans are usually provided with a personal guarantee of the founder of the business. Providing a personal guarantee means that if the business becomes unable to repay debt, then the individual is personally responsible. Risk is that collection of debt through personal guarantee can take a long time or personal assets of the business founder which are not legally protected from creditors are not sufficient.
Historically, the platform has only 0.7% default rate (event of default has occurred or loans are late above 120 days). This does not represent a net loss for the investor as Flender uses third party collection agency to manage defaults occurred, meaning that at least some part of defaulted principal will be recovered. Past historical rate is however no guarantee of future results and current performance may be higher or lower.
Due to the nature of the business, no buyback guarantee is granted. Flender is just an intermediary between you and businesses looking for loans who are providing personal guarantee as assurance.
As already mentioned above, there is no secondary market and I didn’t find any information about expecting this feature.
Remember that with crowdfunding, your capital is at risk. Flender is not covered by the Deposit Guarantee Scheme or the Investor Compensation Scheme. This is a standard practice in the industry as currently crowdfunding in general doesn’t require any license from the regulator.
What Are The Possible Returns
Flender promotes a long-term return of 10% p.a. and more. It is using its own grading system (main criteria of which encompass affordability, liquidity, equity base, business age, directors experience and credit history) and assigns a credit grade between A+ and V. Interest rates for each grade are transparently stated on the website as follows:
From my own personal experience, I can confirm that indeed those interest rates are valid and can be achieved so returns are very much dependent on the risk appetite of the investor.
Flender is also offering generous 5% cashback on investments done in the first 30 days after registration to attract new investors. This is currently one of the highest sign-up bonuses in the market (if not the highest). What you need to do is sign-up via this LINK:
Cashback is added to your balance right after the campaign is approved by the borrower (usually same day when campaign is filled).
At Flender it is possible to set up an auto investment strategy – AutoFlend. This can be used to automatically invest in campaigns in the Flender marketplace by selecting the loan duration and loan grade. This is for passive investors who don’t want to assess each loan individually or want to make sure that the campaign won’t be fully funded before they can login to Flender.
Flender uses the traditional business model in crowdfunding sector. It doesn’t charge any fees to investors and don’t deduct any portion of incoming payments. Business borrowers pay a small fee based on a successfully funded application or campaign after accepting the offer and signing the loan contract (standard in the industry is around 3-5%).
Flender is operated by company Flender Ireland Limited, registered in Ireland, which is 100% owned subsidiary of NKK Finance Limited, registered in the UK. Absolute parent company is NKK Holding OÜ registered in Estonia. All 3 companies have some common shareholders, however, I was able to find publicly available financial statements only about the UK registered company which is currently loss making (loss of EUR 465 thousand in last available records for the year ended 30 April 2018). This may not represent the result of the Flender platform. Lack of transparency towards investors is a little unfortunate as I would expect complex and up-to date communication of financial results to investors.
My expectation is that platform is currently loss making mainly due to high investor acquisition costs in the form of marketing expenses and generous cash-back initial bonus. With the increasing number of investors and campaigns successfully filled, it is a decent profit-making opportunity if managed well.
Summary And Recommendation
|Market Position||Niche segment of crowdfunding of SME loans in Ireland. As main competitors are banks, market position is insignificant|
|Risk||– Default risk of borrower|
– Insufficient value of collateral
– Default risk of Flender
|Loan Performance||0.7% of loans where event of default has occurred or loans are late above 120 days|
|Loan Details||Basic information about the borrower with snapshot of financial statements and loan purpose|
|Auto-Invest||Yes, managed by investor|
|Financial Performance||– Financial statements not publicly disclosed|
– No information about an external auditor
Flender offers commission free investing in loans provided to enterprises based in Ireland from EUR 50 per one loan. Historically, investors were able to receive around 10% p.a. interest and only 0.7% default rate is currently stated on the website. Flender offers instant deposits by debit cards and generous sign-up bonus for new investors. For passive investors auto-invest feature based on the Flender’s own grading system is available.
As one of not many crowdfunding websites, Flender also received approval by the Financial Conduct Authority (FCA) to provide regulated products and services in the UK where the company is going to expand in the future. This might be a great opportunity for investors as the UK is a much bigger market than Ireland and offered interest rates might be more competitive as well.
I’m a little bit disappointed about the lack of transparency in regards to financial statements. However, approval of FCA gives me some assurance at this point about the future of business model.
For me personally Flender is my favorite crowdfunding platform I currently invest in. I like companies which are dreaming big and their dreams are based on real possible scenarios which is definitely the case of Flender. If the industry is going through some changes, this platform offers interesting product which might be the final output of that change.
To recap, if you would like to participate in crowdfunding of small and medium enterprises in Ireland (and possibly in the UK in the future) through platform with unique product and FCA approval with a small historical default rate and you understand the risks and uncertainties involved, you can join me and thousands of others and SIGN-UP HERE.