Using Bitcoin for Small Business Loans on a Global Scale

BitBond cumulative loan volume

In the last couple of years, blockchain technology has disrupted multiple segments of traditional finance. Lenders are beginning to see the advantages the technology offers and how it can help to improve their existing processes. It is still in a nascent stage in alternative lending with  massive room for growth. One such company is Berlin-headquartered Bitbond, […]

BitBond cumulative loan volume

In the last couple of years, blockchain technology has disrupted multiple segments of traditional finance. Lenders are beginning to see the advantages the technology offers and how it can help to improve their existing processes. It is still in a nascent stage in alternative lending with  massive room for growth. One such company is Berlin-headquartered Bitbond, which launched in 2013 as the first global marketplace for small business loans using cryptocurrency Bitcoin as the nodal currency for loans.

Bitbond’s Story

While working as a consultant, Founder and CEO Radoslav Albrecht witnessed the inefficiencies prevalent in bank lending processes, which led him to develop a global online lending platform that can be accessed by almost every SME around the world.

While brainstorming the idea for his startup, he came across the problem of processing cross-border payments and realized traditional remittance methods are extremely expensive and time-consuming. He stumbled upon Bitcoin and realized it is the perfect alternative for transmitting money across borders in an efficient, cheaper, and safer way.

In 2013, he partnered with a software developer from Berlin to launch Bitbond, but they soon parted ways and Albrecht became the sole owner of Bitbond.

Business Model

Bitbond has an uncluttered business model primarily focusing on small business owners like retailers, online stores, and restaurants who have a working capital requirement. Average loan size is $12,000, and loan periods range from 10 weeks to three years. The company caters to businesses all around the globe. Both individuals as well as institutional investors invest in the platform.

As far as revenue is concerned, it charges an origination fee paid upfront by the borrower, which usually ranges from 1%- 2.5% depending on the duration of the loan. For every loan repayment, the company charges 1% from the investor as a loan servicing fee.

Technology

Extensively dealing in Bitcoin to orchestrate payment processes, Bitbond’s process is simple and secure. Investors fund loans with fiat currency and that currency is converted into Bitcoin on the platform. Once that process is complete, a borrower is paid in Bitcoin and can choose a payment method or get the coin transferred to their bank account withdrawing the money after converting the Bitcoin back to the user’s native fiat currency. Bitbond has partnered with Bitpesa, an online payment platform, to convert Bitcoin to pay off loans and process payments across different countries. It has also partnered with Bit4coin, an Amsterdam-based Bitcoin company, that converts Bitcoin into Euros.

Because Bitcoin is relatively new, bank integration is still a problem. Therefore, in some countries, borrowers have to go to a Bitcoin exchange to get currency converted. But the company is trying to tackle this issue by adding more banks to its network. Thus far, they’ve integrated with banks in over 50 countries.

Key Success Factors

The fact that Bitbond exclusively deals in cryptocurrency gives it the ability to lend anywhere in the world. This geographical freedom is what gives Bitbond an upper hand over its rivals. Other lenders dealing in SME funding like Kabbage and OnDeck are no doubt bigger than Bitbond in terms of size, but they are active in only developed markets like the U.S. and the UK. Borrowers already have multiple options whereas Bitbond enjoys negligible competition in dozens of markets across the world.

The firm is also partnering with multiple e-commerce platforms that refer their online sellers to Bitbond. It is a win-win as the e-commerce platforms are able to add value to sellers’ operations while Bitbond is able to partner the company across multiple countries.

Key Performance Indicators (KPI)

ndSource: BitBond
Source: BitBond

It’s a fully regulated financial service institution under German law with a loan volume that stands at $4.5 million. Out of that, $3.5 million was originated this year alone. Bitbond is hoping to grow on a 10X basis for the coming couple of years.

Customer Profile

Bitbond focuses on small online retailers on platforms like eBay and Amazon. They usually have annual revenue between $200,000-$300,000. The loans are typically for buying larger quantities of inventory at a better price. It is able to reach loan decisions in an hour, and even in difficult cases, Bitbond does not take more than two days to get back to the borrower with an answer. This is the reason why small online retailers prefer Bitbond to other financing options. When the company started off, the majority of traffic came from the U.S. but the bulk has now shifted to Europe and Africa.

Lender risk assessments of the future will be much more automated and help cut down loan application processing times. Lack of flexibility when it comes to products is another area where the industry will see a change. Down the road, products will be customized as per the need of the particular business as compared to a one-size fits all approach currently followed.

Future Plans and Company Leadership

Bitbond wants to grow stronger in Europe and Africa, but they also want to tap neglected regions of the world. Secondly, the firm also wants to explore other verticals like secured lending for offering higher ticket loans. They wants to develop a large secured loan marketplace where the collateral is digitally liquidated as compared to the investor or platform physically having to obtain possession.

Albrecht has a degree in economics and, prior to Bitbond, worked as a senior consultant at Roland Berger advising banks around the world on restructuring strategy. Bitbond has so far raised a total of $7.5 million in various rounds of funding with $5 million of it as debt. Obotritia Capital is the lead debt investor and Sekip Can Gokalp led the last equity fund raise of $1.2 million.

Conclusion

There is no doubt Bitcoin is the future and the industry will continue to grow at a neck-breaking pace. Bitbond will definitely reap rich benefits for starting early, and it’s global play is something investors, both debt and equity, would love to participate in for a combination of scale and diversification.

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Written by Heena Dhir.