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The Alternative Finance Market in Denmark




By Guglielmo de Stefano on 14th March 2016


According to a recent report by Cambridge University and EY, Denmark ranked 14th – in terms of volume of alternative finance transactions in 2014 (on a table of 16 European countries), registering a total transaction volume of €2.5m. The country performed slightly better on a per capita basis – with €0.44 per person – ahead of Austria, Belgium, Czech Republic, Slovakia and Norway. Data for 2015 does not yet seem to be available.

 

Summary of the main platforms

 

Peer-to-Peer Lending Platforms

 

Lendino IVS. Founded in 2014, Lendino is a SME peer-to-peer lending platform. The company has lent 20,795,000 kr. so far, with an average net interest rate of 7.3%, from 504 lenders, spread over 48 loans.

 

Borrowers may apply for loans from a minimum of 200,000 kr. to a maximum of 2,000,000 kr., for various purposes, such as production expansion, expansion into new markets, working capital financing, bridge financing. Loan terms range from 3 to 60 months. The company doesn’t indicate representative interest rates on its website.

 

Dansk Låneformidling ApS. Founded in 2014, Dansk Låneformidling ApS was founded by the chartered accountant Henning Laursen and it’s considered one of the pioneers of the Danish peer-to-peer lending space. The company's vision is based on two assumptions:

 

  • Danish entrepreneurs and growth companies do not have sufficient awareness in the financial sector.
  • Many start-ups do not have enough focus on business operations and business acumen.

 

Based on this vision, the platform offers financing options to SMEs as well as financial mentoring services to help them to make the most of those funds.

 

Business plans are scrutinised for all loan applications. No matter whether a business is at seed stage or has been running for a while, the platform needs to assess each borrower’s profile before issuing loans. Loans range from 1 to 5 years and interest rates from 6% to 12%, payable quarterly.

 

Flex Funding A/S. Launched in late 2014, Flex Funding aims to link up small and medium sized creditworthy businesses as borrowers and the general public as lenders, through its proprietary technology. The platform offers both secured and unsecured loans, with maturities ranging from 6 to 10 years. Interest rates are fixed throughout the whole term of the loan.

 

Flex Funding assesses each potential borrower through its credit model, which mixes traditional bank credit assessment, quantitative processes, incorporating historical-based models, market-based forward-looking models and human judgment via in-depth credit analysis.

 

The company services the entire value chain, from on boarding lenders and borrowers, credit assessment and rating, loan documents and execution, collecting loan payments, reporting and statements of income.

 

KreditMatch ApS. Founded in 2014, KreditMatch ApS is an SME peer-to-peer lending platform. Investors can expect to get a return ranging from 4% to 8%, depending on their risk appetite, without paying fees for investing.

 

The platform issues loans only to established and creditworthy companies. KreditMatch’s rating process is divided into two steps, which together help the platform to assess each borrower’s credit risk. The first one consists of evaluating business risk, focusing on geographic location and exposure, sector, competitiveness, profitability and peer-group comparison. The second is financial risk where the company's financial position is analysed.

 

On the borrower front, companies may apply for loans only if their annual turnover is equal to or higher than 200,000 kr. Loan products involve loans for bridge financing, refinancing of debt, working capital loans and loans for capital investment. The only extra cost for businesses (apart from interest rates) is a 1% fee on the principal.

 

Invoice Financing Platforms

 

Dansk Faktura Børs A/S. Dansk Faktura Børs A/S is an exchange for account receivables, where SMEs get access to liquidity by selling their invoices against credit worthy debtors, and institutional investors get access to a unique asset class with attractive short-term yields.

 

Sellers on the exchange are typically Danish suppliers looking to be paid immediately after completing their work, instead of waiting 30, 60, 90 or 120 days. Borrowers are typically credit worthy Nordic companies or the government. Yields are currently in the range of 5-15% per annum.

 

Dansk Faktura Børs offers market-based pricing (or in other words auctions with many buyers), without invoice volume requirements. Businesses set auction minimum prices; then investors bid for the auction and the investor with the highest bid wins. The picture below offers a clearer perspective of the auction model adopted by the platform. 

 

Equity Crowdfunding Platforms

 

Surprisingly, there isn’t any locally-based equity crowdfunding platforms. The most widely-known Danish crowdfunding platform is Booomerang IVS – which has hosted more than 200 successful projects since 2011, but it works using a reward-based model. Swedish equity crowdfunding platform FundedbyMe has a presence in Denmark. Local equity crowdfunding platforms – such as Crowdinvest.dk and Seedmoney – appear to have stagnated due to the lagging regulatory environment.

 

Equity crowdfunding is currently governed by a legislation approved well before the rise of online alternative finance. Denmark has been rather slow in getting up to speed from a regulatory standpoint. The recently established Danish NGO Danish Crowdfunding Association seems to be working hard on strengthening the conditions for various types of crowdfunding – including the equity-based variety – as a financing form for entrepreneurs in Denmark. 

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