Documents

This description of methods used to assign creditworthiness categories to crowdfunding projects on the Capitalia platform is published on the platform website. Investors are informed of changes to methods by publishing an updated version of this description with the last update date at the top of the website. Changes compared with the previous version are highlighted in blue for easier identification. If changes to methods cause material changes to assessment model results, an additional explanation is added.

Capitalia updates its credit assessment policy at least once every two years to reflect changes in loan outcomes depending on their risk characteristics and other relevant factors. Capitalia has implemented quality assurance procedures to periodically verify correctness and consistency of creditworthiness assessment application for issued loans in accordance with the model and internal policy.

Capitalia assigns a creditworthiness assessment and corresponding risk category to each project published on the platform. The project creditworthiness assessment is calculated using a judgement-based model in which statistical measures are integrated with elements based on decision-makers' insights. Capitalia uses an internally developed creditworthiness assessment calculation model. The creditworthiness assessment is used to rank projects by expected losses over the full life of the loan. Capitalia's risk category does not indicate probability of default, but ranks projects by expected losses.

Each factor benchmark and weight is determined taking into account absolute values and industry benchmarks. Values and weights are determined based on Capitalia experience with similar-sized companies in the relevant industry.

The total weight of financial factors in assessment model results is 65%. For indicators marked with *, if the minimum threshold is not met, the project is disqualified.

The total share of non-financial factors in assessment model results is 35%.

** Financial transparency indicators are taken into account when assessing risks arising from money laundering and terrorist financing activities.

Using the input data described in the previous section, Capitalia calculates the project creditworthiness assessment in the following order:

• Creditworthiness assessment (from 0 to 100) and corresponding risk category from E to A+.
• Available Capitalia credit limit (maximum limit for a new loan to the Project owner that can be raised on the platform, EUR).

The assigned creditworthiness assessment and creditworthiness category are used to rank projects by expected losses over the full life of the loan. Capitalia credit rating does not indicate probability of default, but ranks projects by expected losses.

Capitalia compiles and publishes forecasts of expected default levels for the next period, updating these indicators annually. The qualitative interpretation of each risk category reflects the relative risk of a loan in the lending segment in which Capitalia operates (loans to small and medium-sized enterprises in the Baltic states). Based on the approved creditworthiness assessment, the following risk category is assigned:

The maximum loan that can be offered to a potential Project owner is determined by the calculated available Capitalia credit limit. By Investment Committee decision it may be increased by no more than 50%.

Maximum loan term does not depend on results of the project credit assessment model.

The initial risk category (from A+ to E) assigned to systematically assess and determine viability of a crowdfunding project from a risk perspective at the project assessment stage is not changed during the loan term unless serious deterioration of project creditworthiness is identified. Loan revaluation and assignment of an adjusted risk category are triggered by negative credit events. Adjusted risk categories have different grade levels that do not overlap with the initial grade scale described above. Adjusted risk categories are determined based on loan overdue days and other negative credit events. Adjusted risk categories are used for loan valuation.

Capitalia seeks to ensure fair and appropriate pricing of loans issued on the platform. This section describes elements taken into account in the pricing strategy. Loan price is set at a level that compensates risks assumed by investors. The price of an individual loan is determined by Capitalia Investment Committee decision based on the board-approved pricing model.

Other factors that could affect pricing are already included in the creditworthiness assessment calculation model, whose results accordingly affect pricing.

Loan price is approved at the time of disbursement. The loan interest rate offered to investors is determined in accordance with the pricing strategy described in the previous section.

In addition, the Project owner pays Capitalia a loan origination fee of up to 5% of the loan amount and a project servicing fee of 2.5% to 7% per year on the outstanding loan amount per year. These fees cover Capitalia operating and administrative costs.

Capitalia generally does not change loan price after disbursement. To cover additional costs related to work with overdue loans, Capitalia retains as a fee 75% of default interest paid by Project owners on overdue loans.

Capitalia charges Project owners fees for amendments to loan agreement terms and other additional services in accordance with the price list published on the Capitalia website.