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Why lend to a state guaranteed project?

On October we have recently introduced French State Guaranteed loans. These State Guaranteed loans are a new class of loans. They are designed to provide credit to French companies and help them through the coronavirus crisis. This financing goal is different from the projects normally financed on October. Before the coronavirus, we mostly financed growth projects, such as the investment in new machinery or sales channels for example.

But, the financing goal is not the only thing different. The French State Guaranteed loans differ from standard loans on important aspects, such as the interest rate and the duration of the loan. Nonetheless, more than 4 million euro has already been lent to these projects through October. Why do lenders lend to these State Guaranteed loans, even though they differ so much from our standard loans?

How different are the French State guaranteed loans?

To understand why a lender on October might or might not lend to a loan guaranteed by the French State, it’s good to know how different a State Guaranteed loan is:

  • 90% of the outstanding capital is covered by the French state, which makes it a safer investment.
  • The first 12 months the maximum interest rate for a state guaranteed loan is capped at 2%.
  • After the first 12 months, the borrower can repay (part of) the loan, but the loan can also be extended. That’s why the duration of the loan is unknown up front. In case the loan is extended, the interest rate will be increased.
  • Next to that, the amortisation schedule of a State Guaranteed loan is different. The State Guaranteed loan is initially a 12-month deferred loan with payment of interest and principal at the end of the 12 months, whereas our standard loans are repaid monthly.

 

Why do lenders lend?

Most lenders signed up before the coronavirus crisis began. They were used to monthly amortising loans, with an average, non-changing interest rate of 5.62% and a duration that was known up front.

From earlier research among our lenders, we know that most lenders invest in these projects to diversify their investment portfolio, followed by the return and to support businesses in their growth. 

French State Guaranteed loans are very different in nature from our standard projects, but does it change the reason why lenders lend?

So far over 5,000 lenders have invested in at least one of the 28 French State Guaranteed projects and €4,386,200 has been invested in total. We set out a survey to inquire about their motivations to lend. 1,157 lenders replied. From the results, we can see that the reason why lenders lend is different for state guaranteed loans than for our standard loans. Diversifying is not the number 1 reason anymore. Instead, we see that the largest group of lenders (39%) is driven by solidarity. Lenders invest in these State guaranteed loans primarily to help French companies during the coronavirus crisis. The guarantee investment is the second most mentioned reason, followed by the diversification of one’s portfolio:

Interestingly enough, this change in motivation is mostly driven by French lenders. Among French lenders, 47% says that helping companies during the coronavirus crisis is their main motivator to lend. For non-French lenders helping French companies is only the third most mentioned reason (18%). Most non-French lenders invest first because their investment is guaranteed or to diversify their portfolio. Perhaps this is not surprise. We have spotted a Home Bias before among the lenders of our standard projects.

Why do you lend?

Now you know why other lenders invest in state guaranteed loans. But, why do you invest? To help companies, to diversify or just because it’s a good investment? Whatever your reason, we will distribute French State Guaranteed loans on the platform until the end of this year. If you don’t want to invest in these state guaranteed loans, we will still be publishing standard projects. Have a look among our projects, there’s a project to like for everyone!