Finding Funding

As Banks Close the Door, German Small Businesses Turn To Alternative Lenders

Uwe Dyballa, owner of a Berlin company that makes jet sprayers to clean graffiti, turned to an alternative lender for a loan.
  • Why it matters

    Why it matters

    Demand for alternative finance is increasing in Germany as new regulations make banks wary of lending to small businesses.

  • Facts


    • Alternative lending platforms connect companies online with investors.
    • The web businesses say they offer transparency, flexibility and fast processing.
    • German small businesses are increasingly turning to the sites for financing.
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When Uwe Dyballa, the owner of a Berlin company that makes jet sprayers to clean graffiti, was repeatedly turned down for loans by his local Sparkasse savings and loan branch, he started to look elsewhere.

“Banks are problematic to deal with, because it always takes them a very long time until they get back to you,” said Mr. Dyballa, whose business is called Sys-teco. “You have to hand in a lot of documents and the loan I wanted is too small for them to really care about anyway.” He needed a €60,000 ($79,000) loan earlier this year to develop a more powerful cleaner.

Mr. Dyballa used to finance his business with loans from his Sparkasse, part of Germany’s publicly-owned system of local lenders favored by small businesses. But after his bank failed to act quickly on his latest request, he investigated alternative lenders. It took him three weeks to find ZenCap – a peer-to-peer loan broker for small businesses that opened in Berlin in April.

“Banks are problematic to deal with, because it always takes them a very long time to get back to you.”

Uwe Dyballa, Founder, Sys-teco

Mr. Dyballa said friends steered him to ZenCap. Within a day of submitting his application and supporting documents, ZenCap approved his loan. The brokerage firm connects investors with small- and medium-sized businesses that need money.

The company is owned by Rocket Internet, a Berlin Internet incubator whose largest shareholder is The European Founders Fund, which was established by Alexander, Marc and Oliver Samwer and holds 65 percent of Rocket Internet shares. The three brothers originally come from Cologne and made their fortune developing Jamba, a seller of cellphone ringtones that they sold to the American company VeriSign for €203 million ($268 million) in 2004. Other shareholders include Investment AB Kinnevik, Access Industry and Holtzbrinck ventures.


ZenCap Co-founders Christian Grobe and Matthias Knecht. Source: Rocket Internet


ZenCap connects investors with small and medium-sized businesses that need money to expand or develop. It is one of the most high-profile businesses created by Rocket, which has been courted by potential investors in advance of an initial public offering, according to sources close to the company. The firm declined to comment on whether an initial stock sale was being planned.

In the five months since ZenCap went online, a total of 35 firms in Germany have received loans through the brokerage, the startup said. Christian Grobe, one of the co-founders, said the company has raised a total of €1.5 million ($2 million) so far. “We are looking to raise €10 million within the first year,” he said.

Demand for alternative financing has increased in Germany and the rest of Europe. Banks are often reluctant to lend to small- and medium-sized businesses, because their loan demands are too small and unprofitable, experts familiar with the subject said.

But two of Germany’s largest traditional lenders to small businesses, Commerzbank, the nation’s No. 2 lender, and the Raiffeisen and Volksbank chain of retail banks, disputed that assertion. They claim that they are in fact lending to Germany’s vaunted “Mittelstand’’ segment of small businesses, which generates more than 80 percent of the country’s economic growth.

“We do not know of that problem,’’ said Gunnar Mayer of Commerzbank, who nonetheless declined to provide latest figures on the money it loaned to Mittelstand companies. The Raiffeisen- and Volksbanken group, which has over 16 million members and 30 million customers, said its lending rose by 4.1 percent to €202.2 billion ($266.9 billion) in 2013, while the overall lending market shrank by 0.5 percent.

But Mr. Dyballa, the Berlin entrepreneur, said small businesses such as his, which he founded in 2005, have difficulty obtaining financing from banks. “It is difficult to get loans for small businesses,” said Mr. Dyballa, whose business is located in Berlin’s Charlottenburg neighborhood. “If you ask for €50,000 to €100,000, banks don’t see a profit. Only if you ask for more than €1 million, they cooperate more effectively.”

“It is difficult to get loans for small businesses”

Uwe Dyballa

Mr. Dyballa said ZenCap loaned him €60,000 ($79,000) at 7.8 percent interest, which was similar to what he had been paying for his previous bank loans. He said he contacted ZenCap online, and uploaded his company’s latest financial figures plus other documentation requested by the loan brokerage. He received approval without ever having to physically meet anyone from ZenCap.

ZenCap matches potential investors with business owners such as Mr. Dyballa, who could monitor as investors committed funds to him online. “Mr. Dyballa’s loan was financed by a total of 72 investors,” Mr. Grobe said.

ZenCap is one of Germany’s first alternative lending platforms that operates with a loan brokerage licence instead of a bank license. Because it only connects borrowers and investors, ZenCap does not have to maintain capital reserves and comply with other banking regulations as traditional banks must.

Germany’s financial market authorities are monitoring ZenCap closely to see whether the brokerage firm keeps within its operating mandate. “As long as those platforms only act as brokers between investors and businesses, they don’t need a banking license,” Sven Gebauer, a spokesman for the Federal Financial Supervisory Authority said. “But we will monitor carefully that they actually stay within their limits.”

“We are competing with banks now nearly every day. We are winning business from the banks.”

Anil Stocker, chief executive, MarketInvoice

Loan brokering is more advanced in markets like Britain, where one company, MarketInvoice, has raised more than €270 million ($356 million) in three years – with one of their investors being the British government. The latter has provided more than €6 million ($7.9 million) to the loan broker. MarketInvoice specializes in factoring, a form of micro-lending that pays invoices for borrowers.

“We are competing with banks now nearly every day,” Anil Stocker, the MarketInvoice chief executive, said. “We are winning business from the banks.” MarketInvoice wants to expand to Spain, Germany, Belgium, Luxembourg and the Netherlands next year, Mr. Stocker said.


Antil Stocker is the the chief executive of MarketInvoice, a company that specializes in factoring, a form of micro-lending that pays invoices for borrowers. He said he is competing with banks for customers. Source: PR


The German market is underserved, said Justus Lenz, an analyst in Berlin at Die Familienunternehmer, a group that represents 180,000 small family-owned businesses. Having more options to obtain lending will help Germany’s small businesses, he said.

“It will make us less dependent on just one lending partner like the banks,” Mr. Lenz said.

But whether Germany’s family businesses, which tend to have low or no debt and favor conservative investing, turn to alternative brokers such as ZenCap remains unclear.

None of Mr. Lenz’ small business members have approached ZenCap yet, he said. “Companies are skeptical of course, and they have enough capital at the moment,” he said. “If a company needs money, another popular option is to lend from other companies rather than going to banks or alternative lenders.”

ZenCap may also have a hard time starting up in Germany, because loan rates are already low and demand for borrowing from these cash-flush businesses has been restrained.

“But it is possible that regulations are going to make bank loans too complicated and expensive and that those kinds of shadow banks will be taking their place” said Christian Schulz, a senior economic analyst at Berenberg bank in London, referring to alternative lenders.

And therein lies the open question. The idea with new regulations was to prevent another crisis like the one seen in 2008. But if more restrictions result in new forms of unregulated lending, have the new rules created a regulatory monster?

The author is an editor at Handelsblatt Global Edition in Berlin. Contact:

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