Darshan Vaidya, CEO of Credora
How do would-be borrowers share sensitive data with potential lenders so they can secure the credit they need for business growth? US based Credora, which is today announcing a $6 million strategic funding round, claims to have the answer. It enables borrowers to provide key data so that lenders can evaluate the risk of lending to them, but in a way that preserves its confidentiality.
“We help the borrower to prove the claims they make about their business,” explains Darshan Vaidya, CEO of the company, which was founded in 2019. “But our privacy-preserving technology ensures they retain confidentiality.”
Certainly, investors want to lend to these businesses. In a recent briefing, Karen Lam, Head of Investment Specialists for Private Credit at the fund manager M&G Investments, observed: “Appetite for private credit assets has grown considerably as investors seek to gain access to the asset class’s diversification benefits.”
On the demand side, meanwhile, conventional finance is in shorter supply as anxiety in the banking sector increases. “In the decade and a half since the global financial crisis, private lenders have stepped up to provide corporates with an alternative source of funding,” notes Michael Curtis, Head of Private Credit Strategies at Fidelity International. “We believe that now – with banks’ books set to become even more restricted and their costs of funds rising – the role to be played by the private debt markets could become even more important.”
However, while many growing businesses – particularly borrowers such as trading firms, fintechs and special purpose vehicles – are looking for credit to accelerate their growth, some feel uncomfortable with sharing sensitive information. While they can provide lenders with financial statements that provide a snapshot of the business at a given moment, they are not happy to allow access to their real-time data – the “secret sauce” that gives the business its competitive edge.
Lenders therefore have to decide whether to take such businesses on trust – despite high-profile defaults in some areas of the market – or to walk away. Neither option is especially compelling. “Credit fundamentals generally remain strong, although companies are entering a more complicated refinancing environment,” says M&G’s Karen Lam.
Credora’s solution, therefore, is a secure and private third-party platform through which borrowers can provide access to their most sensitive data. The information is not accessible to viewers – even the platform itself – but Credora’s analytics tools enable it to provide a real-time snapshot of the creditworthiness of the business, based on the data provided.
It’s a compromise that appears to be working well, with Credora having facilitated $1 billion worth of loans to a range of different types of borrower over the past year. “We are helping to close a gap,” adds Vaidya. “There is a strong need for credit, but while lenders have the capital, they’re looking for greater transparency from borrowers.”
In practice, Vaidya explains, the outputs from the platform provide a feed of information, constantly updated, on the performance of the company on a variety of key metrics. Lenders can either plug that information into their own underwriting models, or use the default credit scoring models that Credora has developed.
Importantly, Credora sits in the middle of the lending process – it facilitates credit, rather than acting as a provider of loans itself. Lenders pay a monthly fee to access the facility, while borrowers pay a monthly fee to provide their data and enable Credora to maintain a credit score on them.
Having proved the model works – Credora has yet to record a default on a loan it has facilitated – the company is ready to accelerate it scale-up. The business’s $6 million fund raise will help in that regard, with the money come from investors led by S&P Global and Coinbase Ventures. The financing takes the total amount of funding raised by the business to more than $16 million.
The latest investment is earmarked for further investment in Credora’s technology stack, plus further development of an initiative to ease the lending process for institutional investors. “We think our growth can accelerate,” says Vaidya. The company is keen to win market share as competitors in the sector step up their own efforts. Rivals in the credit scoring market include the likes of KBRA and Spectral while technologies such as Proven and Anjuna are also focusing on confidentiality-focused solutions for the credit market.
Still, Credora’s backers think it can come out on top. Charles Mounts, Chief DeFi Officer at S&P Global Ratings, says: “The company is well positioned to be leaders in this space due to their innovative approach and utilisation of technology.”
