Across Europe, companies rely largely on banks for business loans, as they have for decades. But banks cannot meet the full demand for credit, and businesses are looking for alternatives. Twelve years of results from Estateguru show that non-bank, real-estate-backed financing works, and works at considerable scale.
According to Daniil Aal, CEO of Estateguru, European companies still rely heavily on banks to raise capital. An analysis published this year by the investment firm Apollo Global Management found that non-bank lenders account for just 12% of corporate financing in Europe and the United Kingdom, compared with as much as 75% in the United States.
“Increasingly strict rules and general geopolitical uncertainty are making banks more conservative. This limits companies’ access to capital and increases demand across Europe for alternative financing models,” Aal explains.
Estateguru’s results give this trend a concrete measure. The platform has intermediated 956 million euros in loans to businesses, and more than 100 million euros in income has been paid out to investors. Of that loan volume, close to 746 million euros has been directed to projects in Estonia, Latvia and Lithuania. Investors based in the Baltics have received a total of 33 million euros of that income.
According to Janika Roots, CFO of Everaus Kinnisvara, a real estate developer active in the Baltics, non-bank financing complements traditional bank financing and gives developers more flexibility in carrying out projects.
“In real estate development, the need for financing does not always align with a bank’s financing process or with a project’s usual stages. We use alternative financing solutions both to acquire development land and to fund the interim stages of projects, where fast and flexible access to capital is essential. This lets us keep development on its planned schedule and move smoothly on to the next development stages and to long-term financing,” Roots comments.
“Over the past decade, alternative financing has developed into a mature and regulated market whose processes are clear and predictable for companies. Our experience shows that non-bank financing does not compete with bank financing but complements it, making it possible to choose the most suitable financing solution for each project and each stage. This makes the use of capital more efficient and helps projects come to fruition on time,” Roots adds.
Daniil Aal also dismisses the misconception that alternative financing means lower standards. “Although our credit policy is more flexible than that of banks, we are able to keep portfolio quality at a very high level. Of the loan volume financed on the platform over the past three years, 97% has to date been repaid or is performing according to the loan schedule,” Aal explains, adding that clear specialisation is what makes this possible. “Estateguru focuses on real-estate-backed loans in the Baltics. We have a thorough understanding of these countries’ economic and legal environments,” he adds.
In his view, the decline in banks’ share of Europe’s corporate lending market is largely unavoidable. Primarily, though, it reflects new lending volumes being spread across a greater number of credit institutions.
