Ilias KACHMAR: Why has Lendix decided to increase its SME lending capacity?

Ilias KACHMAR: Why has Lendix decided to increase its SME lending capacity?

The French SME lending company has made the decision to increase its loan capacity by 200 million euros. A decision that should reassure private investors.

Lendix decides to think bigger. With the creation of a new fund of 200 million euros, the leader of “crowdfunding” hopes to guarantee to SMEs access to loans. This fund “ensures private customers and offers insurance to borrowers to receive their funds very quickly,” said Thomas de Bourayne, president of Credit.fr. The European Investment Bank (EIB) is one of the investors.

« Increase its strategic strength »

The French platform, which has already lent 150 million euros to SMEs, aims to extend its scope.

“This new commitment of leading institutional investors will increase Lendix’s strength by supporting more than 600 VSEs & SMEs in their development,” said Olivier Goy, founder and president of Lendix. This initiative will undoubtedly help boost the investment of European SMEs, and consolidate its leading position in its category in France: A decision that seems responsible considering how Lendix remains below its target risk budget of 2% of outstandings. Nevertheless, the gap remains wide with the UK world leader Funding Circle, which reported having lent more than $ 5 billion.

However, it should be noted that to lend money to a SME, Lendix proceeds firstly with an eligibility test. It is necessary that:
• The head office has to be in Metropolitan France,
• The company must have a commercial activity,
• The turnover must be greater than 250 000 €,
• Operating incomes must be positive.

An in-depth study is then carried out on the career of the CEO where they verify whether he has created other companies or not, and whether they are doing well or not.

Once these verifications have been made, and to ensure their viability and profitability, the analyst examines – through financial documents – the company’s profitability and repayment capacity, its solvency through EBITDA and equities.

No SME is immune to bankruptcy!

According to a study carried out by the Banque de France from March 2017 to March 2018, the number of SME defaults is decreasing. Defaults are falling for all SMEs (-7.1%) and are increasing for medium-sized companies and large companies (+17 failures over one year), as shown in the table below:

 

Source : Banque de France, Direction des Entreprises, Données disponibles fin mai 2018

The higher the rating, the lower the loan rate!

Even if the number of SME bankruptcies in France decreases, Lendix must ensure that the company to which it will lend funds will be able to repay.
To do such, the Lendix credit team guarantees – as soon as the offer is issued – a fixed interest rate for the entire duration of the contract, based on a rating assigned to the project. This rating, ranging from A+ to C, allows lenders to easily understand the repayment capacity of the company and the risk level of the project to finance.

Here are the loan rates defined for each rating:

 

Source: https://lendix.com

In order to evaluate the loan rate amount, several criteria are taken into account:
– The performance of the company
– The Business environment
– The quality of the management team

The higher the Fixed Charge Coverage Ratio (FCCR), the greater the margin of safety!

Above all is calculated the Fixed Charge Coverage Ratio (FCCR) through the following formula:


• If the FCCR is < 1, there is not enough profitability to cover the debt repayment charges,
• If the FCCR is = 1, the profitability is just enough to cover the debt repayment expenses,
• If the FCCR is > 1, the profitability is sufficient to cover the expenses of repayment of debts.

Thus, in order to ensure its financial independence, any SME must diversify its sources of financing so as to ensure a positive growth, manage its risks and ensure its financial balance.

This decision taken by Lendix is somewhat correlated with the decrease in the number of SME bankruptcies and the growing number of created companies that will perhaps be tomorrow’s large groups.

Sources:
https://www.banque-france.fr/statistiques/chiffres-cles-france-et-etranger/defaillances-dentreprises
https://lendix.com/les-etapes-de-selection-dune-entreprise-chez-lendix/
https://fitsmallbusiness.com/what-is-fixed-charge-coverage-ratio-fccr/

Ilias KACHMAR
ILIAS KACHMAR
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