After having sold his P2P lending platform Finbee in 2020, Laimonas Noreika started building HeavyFinance, a platform where investors can lend to farmers, using heavy machinery as collateral. Since its inception, investors have lent more than 27 million Euro and achieved average returns of more than 12% on HeavyFinance. i2 group is one of the biggest institutional investors on HeavyFinance.
What is the idea behind HeavyFinance?
Agriculture faces a huge financing gap. In Europe alone, it is estimated to amount to 30 billion Euro. Small and medium-sized farms cannot rely on banks for credit. The unified models with which banks score borrowers aren’t suited to the realities of farming. Instead, credit is embedded in the supply chain. Banks provide loans to sellers of seeds and other farming inputs, which then extend credit to their clients. This means that farmers are paying very high-interest rates for buying these inputs on credit, which impacts their margins significantly. We provide a better, cheaper alternative.
The returns that investors achieve on HeavyFinance are quite elevated, so your credit doesn’t come cheap.
At the moment, the returns are still far too high compared to the risk. We expect returns to decrease in the long term, to a more appropriate level of around 6-7%, as more institutional capital enters this market. Agriculture is very attractive to invest in. You finance established businesses with a long history of revenue. There is also the aspect of creating jobs in local communities, helping produce more food, and contributing to more sustainable farming practices.
What is more sustainable about this?
There are farming practices called no-till and strip-till farming that are not only more profitable than traditional methods but also improve soil health and mitigate climate change by using less fuel and helping the soil to hold on to carbon. We promote these practices to our clients - large farms have already switched to no-till or strip-till soil management to increase their profits. It's a simple solution with a big impact.
Who is a typical client and what are the loans used for?
About four out of five clients are grain farmers. They use loans to buy new equipment, buy land or use it as working capital. The average client of HeavyFinance declares 164 hectares of arable land and generates around 200.000 Euro in annual revenue. However, as you can imagine, two hectares of vineyard in Portugal can be as pricey and as profitable as 50 hectares of grain fields in Poland.
When taking loans, farmers often pledge heavy equipment as collateral. It’s a perfect security measure for investors because equipment depreciates very slowly. A harvester costing more than half a million euros gets used only around 250 hours per year. And the heavy machinery market is extremely liquid in Europe. If you can sell a harvester with just a very small discount to the market price, you’ll find a buyer the same day.
You’re already active in Lithuania, Latvia, Bulgaria, Poland and Portugal. What holds you back from expanding across Europe?
At the moment, capital is the only constraint we have. We expected to grow 400% this year, but because of all the turbulence in the markets, we’ll only grow 250%. Investors are in a wait-and-see mode, even though there is no safer place for investments than agriculture. The total amount of agricultural land has been decreasing in Europe making investments in agricultural land and farmers even more liquid.
In terms of geographic expansion, we want to cover every country in Europe, because the financing gap we’re addressing exists in every market from Romania and Greece to Germany and Sweden. But it will take some time. Our next countries on the list are the German-speaking countries, France and Ireland. The largest markets in Europe in terms of demand are Spain and Romania, we’ll address them later.
What can you tell us about the partnership between HeavyFinance and i2 invest?
I appreciate that i2 joined our platform quite early as an institutional investor. This meant that we had to improve our reporting and establish an API for institutional investors. I see that i2 takes good care of the partners that invest with them. The detailed reporting they provide on a loan by loan basis is a reason why I think that many more investors will want to work with them.
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