Contxto – Ever since Red Capital extended financial services eight months ago to include microentrepreneurs, the Chilean crowdfunder has been on a roll. The firm has distributed an average of US$1 million per company to support entrepreneurs lacking access to traditional banking, with 70 percent going to enterprises in Chile.
So far, Red Capital has also raised more than US$6.6 million among over 1,000 affiliated companies. Prominent industries resorting to these alternative loans include manufacturing, construction, commerce, among others.
Like other parts of Latin America, Chilean microentrepreneurs sometimes face challenges regarding reliable financing. Oftentimes, they’re not eligible for funding, making financial survival cumbersome.
Dismal funding reportedly attributes to about 43.3 percent of entrepreneurs calling it quits, says the Association of Entrepreneurs of Chile. Part of Red Capital’s solution is to mitigate this trend by offering progressive loans. They kicked off operations in March, according to a recent press release.
Fueled by Red Capital loans, borrowers can generate a credit history, whereas before it was non-existent. The better loan recipients comply with the agreement, the more capital they can access. Simultaneously, this allows Red Capital to appraise clients’ payment behavior while preparing them to enter the formal banking system.
To apply, companies must verify a few tidbits of information. Besides obtaining the necessary tax files, this entails generating at least US$4 million for monthly sales while operating for a minimum of one year.
Red hot crowdfunding
With no signs of slowing down, Red Capital has reportedly doubled in size every year since it was founded four years ago. Even better, it has facilitated more than 6,000 financing operations while assisting them to reduce financial costs by 37 percent.
On the flip side, the firm works with over 7,000 investors with average annual returns worth 12.6 percent. While some may consider crowdfunding to be risky, Red Capital asserts a default rate smaller than 1.1 percent.