Sourcing for funds for small and medium-sized enterprises (SMEs) is no easy task as payback terms and conditions set by banks and other large-scale financial establishments seem unfavorable and could cripple the activities in the SMEs. In 2012, Martins Liberts and Donatas Juodelis, owners of an SME in Lithuania, were faced with the challenge of day-to-day financing of their team, having drained their accounts and exhausted the option of borrowing from friends and family. Traditional financial Institutions refused to offer them loans, forcing them to sell the majority of their company shares. This injustice which they faced forced them to act.
Fast forward to 6 years later, and these Lithuanian business owners are on the verge of creating a way better alternative to the traditional financial model that has performed so poorly in providing financing for promising small businesses worldwide. After a successful initial coin offering (ICO) that raised about $18 million, the pair, together with Justas Saltinis-the CEO and Co-founder of DEBIFO is set to launch this much-anticipated outlet on the 3rd September called Debitum.
With estimates showing that banks reject more than 50% of loan applications from small and medium-sized enterprises in developed countries and more than 70% rejection in developing and underdeveloped countries, Debitum would serve as a more reliable alternative for SMEs sourcing for financial aid. Debitum would operate by lending on the condition of an invoice which allows from prompt paybacks from the SMEs. It also aims to surpass the high-interest rate 1-5 year plan by the traditional financial institutions as it allows for paybacks between 2-6 months. Fiat currency would be used to carry out transactions on the network making it accessible to small traders who are inexperienced in the cryptocurrency market.
Debitum is built on the Ethereum blockchain. Speaking on why the blockchain was the most preferable for the project, Martins Liberts said;
“The main issue we see at underserved small companies is the trust of potential investors to deploy their available capital. We see that there are two options to solve that: a) create a large central organization, everyone trusts – unfortunately, we have seen limitations of such an approach, and it hasn’t happened so far. b) to use technology that allows putting trust in the technology and ecosystem itself, rather than a particular central body.
We chose to go with option b) and hence using blockchain for Debitum Network is essential to ensure that all data is kept transparent, objectively accurate trust ratings can be calculated and shown for each member to ensure data can’t be modified in any way. Also, blockchain and underlying smart contracts functionality allow automating many steps of the financing process.”
Debitum has announced partnerships with other alternative borrowers including DEBIFO, Credital and Monify; working with financing invoice as well as regular business lending. Other partners include Finpass, and Scorify – with the role of issuing automated scores to all potential loans on the Debitum platform.