heavyfinance

Heavyfinance Farm Loans Pay Proceeds from Carbon Credits Sales Instead of Interest

wiseclerk

Heavyfinance* is a P2P platform where investors can lend to farmers, often secured by farm machinery. Recently, Heavyfinance* launched a new type of loan, which they have named “Green Loans“. The idea is that farmers cultivate their fields using climate-friendly methods (‘carbon farming‘). In the process, carbon emissions are reduced so that they receive carbon credits. Investors can invest specifically in loans that contribute to climate protection (‘carbon investing‘).

Unlike in ‘normal’ loans, the investor does not receive any interest, but in addition to the repayment of the loan, receives a share from the proceeds from the sale of the CO² certificates.

heavy finance green loan
Illustration: Example of a cash flow plan for a green loan.

As the picture of the example loan illustrates, this is a very long-term investment. Although the loan amount is repaid within 3 years, the proceeds from the certificate sale are paid till the 10th year. Heavyfinance* forecasts an annual yield of 17% to 56%, depending on the price of the carbon credits.

Pros for investing in Green Loans:

  • Support for climate-friendly measures
  • High return, if everything works out as Heavyfinance predicts.

Cons for investing in Green Loans:

  • No fixed interest rate, there is a risk that Heavyfinance’s forecasts are too optimistic
  • Very long-term investment, though loans can be traded on the secondary market
  • New model, no track-record so far

Incidentally, the farmer has a vested interest in the carbon certificates being issued and marketed, because he also participates. In the first 7 years he receives 60% of the proceeds (the investor 40%) and in years 7-10 80% of the proceeds (the investor 20%).

I asked Heavyfinance* how they deal with the risk that the farmer does not implement the climate measures after receiving the loan and thus no certificates can be marketed. In that case, the farmer has to pay penalty interest (10-13%) as agreed in the contract between Heavyfinance and him.

The certificates are not traded on a stock exchange. Heavyfinance* told me on request that they plan to sell them to carbon certificate traders who already trade in large volumes of carbon certificates. Another possibility is direct sales to selected large companies.

I will follow with great interest how the green loans at Heavyfinance* develop and what certificate proceeds are actually achieved.

The green loans are marked with a green background on the project overview page at Heavyfinance* and are therefore easy to see in the overview.

Heavyfinance launches platform for loans backed by heavy machinery

wiseclerk

Startup Heavyfinance* has launched a platform for lor loans backed by heavy machinery, the first of this kind in the p2p environment as far as we know. The loans are backed by machinery in Lithuania (currently, the company plans to add Latvia, Portugal, Spain and Bulgaria and other EU countries), but the platform is open to investors internationally.

CEO and co-founder Laimonas Noreika told P2P-Banking: “First of all, every farmer, lumberjack and construction company has some heavy-duty vehicles that usually are not taken into account when traditional financial institutions evaluate their risk level. Consequently, those small and medium businesses cannot get loans, even though they have many assets to use as collateral in case of a default. Furthermore, prices of heavy equipment are extremely stable due to the nature of this highly international market. Used combine harvesters, tractors, excavators and other heavy-duty vehicles can easily be exported to foreign countries and transportation costs are relatively low compared to the size of the transaction. ”

Lainmonas has a lot of experience in the p2p environment as he co-founded Finbee* in 2015, a Lithuanian platform for consumer and business loans.

Main parameters of the loans on Heavyfinance* are:

  • Interest rates from 9% to  14%
  • minimum investment 100 EUR
  • loan terms usually between 4 months and 3 years
  • no fees for investors
  • secondary market
  • machinery is insured and serves as security for the loans

Investors can choose to invest in loans depending on the risk they are willing to take. Risk levels are indicated by letters A (lower risk), B (medium risk) and C (higher risk). Consequently, while you could earn up to 14% interest rate by investing in C risk level loan, A risk level loan would bring you around 10-12% interest rate depending on the amount you’ll invest.

Talking about the risk assessment in more detail, these are the main criterias the platform looks at:

  • Financial statement for past 2 years;
  • Balance sheet;
  • Cash flow statement;
  • Reputation of business owner;
  • Loan-to-value ratio

Regarding the COVID-19 pandemic situation Laimonas stated: “It is safe to say that the agricultural sector was one of the least negatively affected. One of the challenges we noted was a limited supply of heavy-duty vehicles and farm equipment parts due to the shutdown of some production facilities and the disruption of supply chains. …”

HeavyFinance is supervised by The Central Bank of Lithuania under the track of crowdfunding platform operators.

heavyfinance founders
Heavyfinance founders