Assessment of the Business Plan Based on Key Financial Figures
The business plan is evaluated based on the key financial figures provided by the entrepreneur. These might include financial statements from recent years or, in the case of a start-up, projected balance sheets or cash flow forecasts.
This analysis results in two key outcomes:
- The repayment capacity for the requested loan
- The risk classification of the project
Capital Circle categorises projects into several risk classes, ranging from relatively low to relatively high risk. These classifications provide investors with a clear picture of the financial feasibility of each project. The assigned risk class also determines the minimum nominal interest rate the entrepreneur will pay to their investors. Naturally, the higher the perceived risk, the higher the expected interest rate.
Dynamic Interest Rate Model
Under the ECSPR licence and in line with increasing professionalisation in the market for market-based funders such as Capital Circle, we have adopted a new model. Capital Circle will now align the interest rate floor per risk class with current European capital market rates, using a standardised methodology.
A fixed interest margin will be added to the base rate, depending on the project's risk class and the loan term. This interest margin, expressed in basis points (1 BPS = 0.01%), increases more than proportionally with the level of risk (see Table 1 below).
To protect project owners, the maximum margin for the highest risk class is capped at 1,200 basis points (12%). Projects that receive a risk rating higher than this threshold will be automatically rejected and not published on the platform.
Risk Classes
| Risk Class | Rating | Risk Description | Minimum Interest Premium (BPS) |
|---|---|---|---|
Class 1 | AA | Very Low Risk, Excellent | 200 BPS (2.00%) |
Class 2 | A | Low Risk, Good | 300 BPS (3.00%) |
Class 3 | BB | Moderate Risk | 450 BPS (4.50%) |
Class 4 | B | Above Average Risk | 600 BPS (6.00%) |
Class 5 | CC | High Risk, Weak | 900 BPS (9.00%) |
Class 6 | C | Very High Risk, Speculative | 1,200 BPS (12.00%) |
Disclaimer
The assignment of a risk class is an estimate of risk at a given moment in time. It does not constitute a guarantee, and no rights can be derived from the classification. Each project must be assessed independently by the investor. A 2-day orientation period could be provided following the initial publication of each project to allow investors to conduct their due diligence.
Within the project’s comment section, investors can ask questions about the proposition. These questions are typically answered by or on behalf of the entrepreneur. There is no obligation to invest.