What are the financial guarantees and how is risk mitigated?

As a crowd-lending platform, we bring together borrowers (companies, NGOs, social institutions) who need financing (borrowers) and lenders (private or institutional actors) who are looking to invest (creditors).

There are several risks associated with this investment class, the most significant being credit risk (where one or both parties do not fulfill their contractual obligations), operational risk (where the project fails for technical reasons), and market and industry risk (where a change in the economic climate can cause the project to fail). 

To minimize credit and operational risks, our team follows a rigorous risk assessment protocol before launching any project for funding. The protocol comprises three steps: project admissibility criteria, statistical credit model, and technical project assessment. You can learn more about our risk assessment model here.

In addition, to mitigate our lenders' exposure, we negotiate guarantees and similar mitigation measures that are triggered should the borrower cannot fulfill their contractual responsibilities towards the lenders.

Such compensation and mitigation mechanisms can include:

• Equipment pledge: as we are talking about a secured loan, the pledge has priority over other loans.

• Financial guarantee from the parent company or the legal representatives themselves.

• Co-financing by another company or non-repayable entity. In case of default, a third party guarantees the payment, not the creditor/lender.

Investing in a project means that you are lending capital to an entity, which in turn means that you are taking a risk that could result in the partial or total loss of your capital invested.