Crowdestor review

Table of contents

Key borrower metrics on Crowdestor's project description

Crowdestor's overview

Crowdestor offers real-estate and business loans. Their interest rates are usually in the 14%-26% range, for durations varying from one to two years.

My opinion on Crowdestor

Since Summer 2020, many improvements were unveiled at Crowdestor. It started with the enhanced projects descriptions and borrower’s credit report, which are a huge step forward in terms of investors information. In addition, the long awaited investor’s cabinet now provides useful data regarding the portfolio’s status. Similarly, the new loan management system (LMS) now guarantees that investors are kept up-to-date in term of projects updates. Finally, the availability of public statistics is an improvement in terms of transparency, although they may actually be biased, as we’ll see.

However, the current performance of Crowdestor’s loans portfolio is rather bad. Many loans are delayed or defaulted; roughly half outstanding projects are delayed by more than one month ! In addition, the reliability of the recovery process remains to be proven.

For now, unfortunately, investing in Crowdestor looks like a gamble. I really like this platform, but would advise prospective investors to carefully assess the projects they invest in !

Detailed ratings

Actual performance

My returns have gone down, as many businesses suffer of the economical downturn caused by the Covid-19 epidemics.

Loans liquidity

There are many new investment opportunities each month, which allows a large portfolio diversification.

Reporting

The lack of a status report for the portfolio used to be very problematic. However, although the ergonomics of the dashboard could be improved, it now displays a useful overview of the delayed loans. Imprecise or lacking information from borrowers remains a problem for several projects.

Transparency & reliability

Communication and transparency have improved a lot, and so did the reporting regarding delayed loans. However, very few recoveries have started, even for greatly delayed projects.

Website ergonomics

Crowdestor‘s website is simple but has become rather user-friendly. In particular, the navigation system has improved a lot – it used to drive me mad -.

Crowdestor's pros & cons

Pros

  • High interest rates
  • Financed businesses belong to diversified sectors
  • Projects are added very regularly
  • Availability of a standardized scoring model and detailed financial information for new SME loans

Cons

  • Large number of delayed projects
  • Uncertain recovery process

Loans characteristics

Loans durations

Medium-term : one month to one year

Long-term : more than one year

Loans kinds

Business

Real-estate

Minimal investment

€50

Buyback guarantee

Buyback guarantee NOT AVAILABLE

Currencies

EUR – Euro

Overview of Crowdestor's loans

Crowdestor allows investors to lend money to SMEs and invest in real-estate loans. Interest rates for recent projects varied greatly, from 12.5% to a very high 36%. The loans durations are also very heterogeneous. Indeed, they can be as short as 2 months and as long as 24 months.

Regarding the investment duration, please keep in mind that due to the current state of the economy, reimbursement are likely to be delayed. It’s also possible for borrowers to get an extension. Both will result in funds being invested for longer than expected !

The diversify of the financed businesses is one of Crowdestor’s greatest strengths. Here’s a sample of the recently funded projects :

  • Canned fish production
  • Export of timber to China
  • Building of a warehouse
  • Import of syringes and gloves for the European vaccination program
  • Working capital increase for an advertising agency or a road construction company
  • Reconstruction of an apartment building- Improvement of a retirement home

Most borrower are located in Latvia, but several projects were financed in other European countries. There were even a few projects in Asia. However, as they were tourism-related, they were heavily hit by Covid-19 and defaulted. I thus doubt we’ll see more of then soon.

Many loans yield interests monthly, although there are some variations. These include quarterly interests repayments, or full bullet loans. Investors who want a regular cash-flow should check the projects descriptions carefully !

Minimal investment amount used to be € 100 per project, but has been lowered to € 50. However, unlike CrowdEstate, the invested amount doesn’t need to be a multiple of € 50. This allows you to reinvest interests faster !

In the future, there will be a stronger projects segmentation, so this minimal investment is likely to be different from one project to another.

Another interesting aspect is that interests are computed from the day you start investing, instead of the day when the project is completely funded. And even if the project doesn’t get successfully funded when the deadline comes, you still get interests for the period between your investment and the deadline !

Several projects were funded in several rounds, which is a common practice. For example, the recent “Canned fish production” project had a funding target of €300,000. There are six rounds planned in six months, with a target amount of €50,000 for each of them.

Loans security

One very important point is that unlike – for example – real-estate projects on EstateGuru, few loans at Crowdestor are secured by a collateral. Instead, a simple personal guarantee is generally used. It means that if the borrower defaults, large capital losses can happen. The LGD (loss given default) for several SME project is expected to stand at 50% or more. This means that investors may lose more than half of the capital invested in a project secured by a personal guarantee !

This is the price to pay for higher interest rates : they stand at 10% – 11% at EstateGuru, compared to more than 20% at Crowdestor. In order to mitigate the risk of capital loss, it’s important to build a well-diversified loans portfolio, or invest solely on loans secured by a 1st-rank mortgage.

Loans volume

Until Spring 2020, there were usually several new projects coming each week. During the Covid-19 epidemics, Crowdestor has announced expansion plans. This has lead to the company focusing on building an automated scoring model for loan applications; while it was developed, few new projects appeared on the platform. Most of them were initially issued by loan originator Monify, before being bought back by Crowdestor.

Now that the first phase of the SME automation is live, the loans volume has increased again, as they are automatically processed. In addition, several refinancing projects were published.

The amount needed for each project is usually rather small (around €100,000 – €200,000), so they get funded rather quickly. However, there are also a few very large financed amounts; indeed, several loans reached €950,000. On the other hand, the capital for the loans issued by Monify was commonly smaller than for previous projects. One of them, granted to a temporary employment agency, was as small as €1,391 !

Again, thanks to the automated application process, smaller loans should become commonplace.

Crowdestor's provision fund

In late February 2019, Crowdestor announced the creation of a buyback fund – actually named provision fund -. It will be used to reimburse part of the invested capital in case the borrower defaults. The initial amount was €50,000; it grows thanks to a commission on new projects.

It looks like a great idea – this is similar to Omaraha‘s warranty fund, which works rather well -. Unfortunately, to be blunt, the way Crowdestor manages the buyback fund is a mess.

First, the displayed amount hasn’t been updated during most of 2020. As of March 2021, it stands slightly above €400,000. It still looks like it’s updated manually, as it doesn’t change when projects get funded.

More importantly, the rules governing this fund are unclear. Initially, they didn’t even get published. Then, after they were available, they changed several times. In a recent webinar, Crowdestor’s COO Anatolijs Putņa mentioned yet another change. It was more than one month ago, and the website still indicates that the explanations will be announced.

Platform’s transparency and reliability

Although things are headed in the right direction in terms of transparency and communication, there’s still a lot of room for improvement – especially in terms of reporting and recovery -.

Crowdestor’s background and team

Crowdestor was founded in Janis Timma and Gunars Udris in 2017. The platform is registered in Tallinn, Estonia but their offices are located in Riga, Latvia.

Janis Timma is an expert in energy sector – he’s actually CEO of the Latvian Cogeneration Association -. One of his early projects was in fact crowdfunded on CrowdEstate before he founded Crowdestor !

Artur Geisari, who’s also the ex-CEO and co-founder of loan originator Monify, joined Crowdestor as Head of SME in Spring 2020. He left the platform one year later. The reasons given for this departure are vague, but many investors speculated that his bad track record at Monify was partly to blame. Indeed, several marketplaces (including Iuvo and Viventor) started legal actions against this lending company in order to recover investors’ funds. In addition, he had unclear connections with the borrower from a project which turned out to be a scam. Overall, judging by the reactions on Telegram channels, one can safely say that he won’t be missed.

Crowdestor now employs around 20 people. A recent improvement in terms of transparency is that the composition of the whole team is now disclosed on the platform’s website. It includes a direct link to their LinkedIn profiles, when available.

There’s no financial report publicly available. An unaudited report was provided to potential investors when Crowdestor raised money to funds its growth in Spring 2020. It shows a small profit for 2019, while the platform expects a loss for 2020 and 2021 due to large investments and new hires. The platform plans to release reports audited by a big accounting firm starting this year.

In total, the platform has financed slightly less than 400 projects, for a total amount close to 50 million euros. More than 21 000 investors are registered on the platform – I previously wrote 70 000, which was a clear mistake -.

Loans descriptions

A long-standing critics towards Crowdestor was the lack of information regarding borrowers. Indeed, in spite of the sometimes long projects descriptions, many investors complained (rightfully) about the lack of financial information regarding the borrower. It was thus hard to evaluate the risk of investing.

However, with the launch of the SME automation in August 2020, investors now have a direct access to the borrower’s financials. And even investors will little financial knowledge will be able to use Crowdestor’s rating in order to assess whether a given loan matches their risk appetite !

Crowdestor's first automated SME project

For investors, the two main advantages of automated loan application processing are :

  • A unified evaluation for borrowers, with detailed metrics allowing investors to assess the risks
  • The ability to scale easily, which should increase the loans supply and thus improve the liquidity

A detailed explanation of the credit scoring model is available on Crowdestor’s website. I’m a bit skeptical regarding the claim that 500 databases are used for scoring, though. Indeed, as a former IT, I realize that connecting to outside databases or web services can be painful; I’m thus very surprised that Crowdestor’s IT team managed to connect to so many databases in a matter of months.

Let’s start by examining the “key metrics” grid; it contains extremely useful information.

Key borrower metrics on Crowdestor's project description

Borrowers are assigned a rating. The rating scale ranges from AAA – which indicates a very high credit quality – to E – for defaulted or soon-defaulted companies -. Loan applications resulting in a rating from AAA to C are considered fundable, while lower ratings result in a rejection.

The standardized company rating gives an indication of the probability of default. For the highest rating (AAA), it stands below 1%; for the lowest fundable rating (C), it stands between 12% and 16%.

The exact default probability computed by the model is available. When multiplied by the Loss given default (which indicates the likely capital loss after a default), it indicates the expected capital loss. In the screenshot above, it’s around 7%. As the interest rate for this project’s investors is 28.5%, the average return for this loan is expected to be above 21%.

Of course, this will hold only if the model is correct, and for sufficiently diversified portfolios. A 78% capital loss on a poorly diversified portfolio is indeed likely to be a catastrophe. What I really appreciate with the availability of these statistics is that they help realize the actual risk of the portfolio.

The description also contains a summary of the borrower’s financials. They’re currently based on the data for 2019, as financial reports for 2020 aren’t available yet for most businesses.

Borrower's financials

As can be seen on the above screenshot, a link to public information on borrowing company is provided (and the financial report is available for download). For Latvian companies, Lursoft is used.

Finally, the credit report provided to the borrower is also available for download as a PDF. With the exception of a few confidential information which has been redacted, it’s the same report that’s provided to the borrower after a loan request.

It’s 15 pages long, and although part of it is already available on the project’s description, it also provides new information.

Among these, the effective interest rate charged to the borrower – which includes Crowdestor‘s commission. For example, for the latest “Meat factory” loan, the interest rate for investors is 28.5%, but the final interest rate for the borrower is 40.7% !

Actual interest rate for borrowers can be very high

We can also assess the company’s financial health, as we can see how it stands compared the industry average for several meaningful ratios :

  • Gross margin
  • Profit margin
  • Debt/equity ratio
  • Current ratio
  • Quick ratio
  • Inventory turnover
  • Collection days
  • Revenue per employee
Evaluation of the borrower's financial health

Overall, I’m really impressed by the credit report. If Crowdestor’s scoring model is correct, it will be an invaluable tool for investors to pick up the loans matching their risk profile !

In addition to these automated SME loan requests, Crowdestor plans to keep on accepting what they call specialized projects. They’re typically larger and less standard than SME projects. Projects similar to WarHunt (movie production) or Dystopia : Rebel Empires (mobile game development) are likely to fall in this category.

A negative aspect of the platform is that it’s impossible to check projects before they open. This leads to a FOMO (fear of missing out) effect, and many investors invest their money blindly.

Also, once a project is totally funded, the description is only available for investors who funded it (although Google’s cache may help with that).

Track record

If Crowdestor is a great platforms for borrowers, many investors are – to say the least – very frustrated by their returns.

Indeed, if the platform’s track record was basically spotless before the first Covid-19 wave, things have changed for the worst. Many reimbursements are greatly delayed, and several loans defaulted.

According to the platform’s statistics, slightly less than 400 projects were funded. Among them, close to 100 were repaid. Statistics for the active projects look rather bad, though. Roughly half of them are current, while more than 15% are delayed by more than three months, and 10% are in recovery.

One long-standing critics towards Crowdestor is that it took the platform a very long time before they started defaulting projects. Indeed, after the first wave of Covid-19, borrowers were granted a delay for repayment. It then got extended for many of them. Unscrupulous borrowers used this as an opportunity not to repay, although they had the financial means to do so. Fortunately, in early Spring 2021, the platforms seems to have taken a much harder stance against them. In addition, projects which were greatly delayed with little hope of future repayments – such as the resort in Cambodia – got defaulted, too.

Finally, at least one project on the platform turned out to be a scam. This is unfortunately not uncommon in the crowdlending world. Indeed, two projects published at CrowdEstate proved to be scams, while BulkEstate canceled the funding for one project as the borrowers submitted fake documents. In Crowdestor‘s case, the money was supposed to finance export of fertilizer but it was never repaid.

Reporting & statistics availability

For a long time, there was basically no way to track projects statuses at Crowdestor. Thus, until last summer, investors had to rely on a shared document on Google Sheets to track delayed repayments ! Understandably, this topic lead to a lot of frustration for investors. Fortunately, this issue was finally addressed, and investors can now access a proper portfolio overview. In addition, the website now clearly displays updates received from borrowers, as well as automatic notifications for missed payments.

The system still isn’t perfect, though. For example, collateral for projects in the tourism industry in Asia was put on sale. However, these projects are still marked as “Late for more than 3 months”, although I’d expect them to be classified as “In recovery”.

Also, the automated notification system doesn’t take week-ends into accounts. It means that investors will receive a notification every time a repayment is supposed to occur on a week-end or holiday day, as banks don’t process these.

Platform's features

Early exit

Early exit available

Investing methods

Manual investing

Secondary market

For a long time, Crowdestor didn’t provide a secondary market. Clearly, its availability was an opportunity for disgruntled investors to get rid of their portfolio.

In terms of usability, the first iteration of the secondary market wasn’t really satisfying. However, it has improved a lot, and there’s no more complaint about this topic.

It now provides several filter, which include the project status, industry, or discount / markup.

The fees structure is more complex than on most other platforms. On the seller’s side, things are rather simple : the sale incurs a 2% fee. However, if the buyer gets a discount of 10% or more, then the buyer’s commission is 10% of the difference between the discount and 10%. It will be capped to 2%.

Confused ? I can understand it. Here are concrete examples :

  • If the discount is 6% (that is, less than 10%), there”s no buyer”s commission.
  • For a 25% discount, the commission is 10% of (25% – 10%), this 1.5%.
  • For a 40% discount, the commission should be 10% of (40% – 10%), thus 3%. However, the capping comes into play and reduces the buyer”s commission to 2%.

Auto-invest

It’s currently not possible to invest automatically. In summer 2020, when the SME automation was launched, the platform confirmed that this feature is still planned. However, no timeline was provided.

Manual investing

Upcoming projects are usually visible on the platform a few days before they’re available (between one day and two weeks ahead of time). A countdown indicates how much time is left before the project opens. Unfortunately, as already mentioned, investors can’t access the description before the funding actually starts.

Although most recent projects required a few days to be totally funded, several got funded in a matter of minutes.

One missing feature would be the ability to filter out projects where the investor already invested in a previous funding round. This is especially annoying when several loans are granted to the same borrower but the projects have different names !

Website’s ease of use

Languages

English, German, Spanish

Funding methods

Available languages & translations quality

Crowdestor‘s website is available in English as well as in German and Spanish. The English translation is great.

I previously wrote that there was a Portuguese translation, but either I was wrong or this featured was removed.

Crowdestor's registration process

Signing up at Crowdestor is straightforward, as is often the case for crowdlending platforms.

KYC is now handled by Veriff, which I consider the most user-friendly identity verification service available.

During the registration process, investors have to define a PIN code in addition to the password; it will be required when investing. Another safety measure is the optional use of Google Authenticator.

Account funding and funds withdrawal

It’s apparently mandatory to input to amount transferred on Crowdestor‘s website before actually transferring it. It’s also the case on BulkEstate‘s website, and although it’s not a big deal, it’s easy to forget it.

The transferred funds are usually processed quickly. Indeed, they are usually available on my Crowdestor account as early as the next business day. Withdrawals usually also commonly require only one day to appear on my bank account.

Website’s design and ergonomics

Crowdestor‘s website is simple but well designed. However, navigating the dashboard takes some time to get used to.

Several screens used to lack critical information, or link to relevant pages. For example, the transactions list didn’t list the project name for interest or principal repayments. Similarly, it was impossible to click on a project from the upcoming payments list in order to get details. Fortunately, these areas have improved gradually.

Reporting

As already mentioned, Crowdestor’s dashboard used to lack many reporting features. Fortunately, it has now become much easier to track your investments.

First, handy donut charts allow to effortlessly visualize the diversification level of your portfolio. They break down your portfolio according to the following criteria :

  • Project type : SME, Real-Estate or Specialized
  • Industry
  • Credit rating of SME projects

In addition, a diversification level – from one to ten – is computed. Unlike EstateGuru‘s similar indicator, the computation details aren’t displayed.

Then, it’s visualize to track past cash-flows. Unfortunately, unlike it doesn’t display future expected reimbursements.

The last tab will be the most useful, as it displays the payments statuses. In addition to a pie chart showing the delayed loans, it displays status updates for projects. These include :

  • Notification regarding missed payments
  • Messages received from borrowers
  • Changes made to the loan : for example, contract termination or loans extensions

One recent and very welcome addition to the dashboard is the XIRR (extended internal rate of return). Previously, it displayed non-annualized returns, which are hard to compare between platforms. I wish the XIRR were more commonly used !

On the minus side, a common source of confusion – and even frustration – is the dashboard’s “Upcoming payments” list. Indeed, these reflect the original schedule. However, for rescheduled projects or extended loans, this schedule usually isn’t updated.

Overall, the current dashboard is a huge step forward. There’s still a lot of room for improvement, though. For example, being able to differentiate between the theoretical and actual repayment date. This should be fixed by the next increment of Crowdestor’s LMS (loans management system).

Documentation

Crowdestor‘s documentation could be improved. Indeed, while the FAQ A FAQ is simply a compilation of Frequently Asked Questions is rather complete, breaking it down into sections would make it much more readable. Moreover, apart from the FAQ, there’s very little documentation available.

Communication & support

In terms of communication, things have obviously improved since Spring 2020. It used to be very messy, as many different communication channels were used more or less randomly : Facebook, Telegram, e-mails, Crowdestor’s blog, and so on.

Fortunately, now that status updates for projects are available on the dashboard, the need for additional communication has decreased a lot.

Most e-mails from Crowdestor will be notification of reimbursements, or announcements of new projects. It’s possible to opt-out of these notifications from the Profile screen.

The weekly newsletter is almost always disappointing. There’s basically zero substance, as it just lists recent projects.

There’s an unofficial Crowdestor discussion group on Telegram. Although the quality of discussions has improved, they still mostly take place between Crowdestor haters and Crowdestor fanboys. As a result, many of them aren’t worth reading.

Official Crowdestor pages on social networks

Support

When it comes to getting support, it’s possible to get in touch with Crowdestor by phone or e-mail.

At some point, I sent an e-mail to the support as my account’s balance was incorrect. They quickly replied that this incident was being investigated; when I logged in the following day, my balance was back to normal. However, I regret that they didn’t get in touch to notify me that the problem got fixed.

Another opportunity to get help or report bugs is the aforementioned Telegram discussion group. Indeed, Crowdestor’s COO is present there and is generally very helpful and reactive.

Actual performance of my Crowdestor portfolio

10,79%

At the end of October 2021, the XIRR for my Crowdestor portfolio was 10,79%.

In spite of many delays, the performance of my Crowdestor portfolio was overall stable in late 2020 and early 2021. It obviously took a dive in Spring 2020, as many borrowers were unable to repay the loans. Before that, the returns used to stand at around 15% !

Don't hesitate to read my most recent crowdlending portfolio review for detailed platforms performance comparison as well as historical performance.

For a detailed comparison of the different real-estate and business crowdlending platforms, check out this article.

Portfolio creation date

I created my Crowdestor portfolio in February 2018

Crowdestor's main competitors

Crowdestor's facts & figures

Location

Tallinn, Estonia

Founding year

2017

Number of investors

25,700

Loans amount financed

€55,800,000

As of November 2021

Who can invest at Crowdestor

  • You must be at least 18 years old.
  • You must have an active bank account in one of the European Union or EEA banks.
Crowdestor FAQ

In conclusion...

Crowdestor is a very polarizing platform. Many investors complain about the delayed loans, the vague updates and overall poor performance. At the same time, other welcome the opportunity to diversify their loans portfolio and invest in projects with supposedly high returns.

I still love this platform a lot. However, unless the recovery process improves, it's hard for me to praise it as much as I did. Prospective investors should especially be aware of the risks caused by the lack of collateral on most projects, as well as of the large repayment delays incurred by the Covid-19 epidemics.

Disclosure

Please note that this review may contain affiliate links. It means that I will earn a commission if you decide to invest after clicking through the link – at no additional cost to you, of course -. Please understand that I have experienced all of these companies, and I recommend them because they are helpful and useful, not because of the commissions I make if you decide to invest through my links.