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Max Crowdfund Risk Rating Model

MC risk rating model

HOW DOES THE MAX CROWDFUND RISK RATING MODEL WORK?

Rating

Risk

Score

Interest

A

Low

75-100

4.0-6.0%

B

Moderate

60-74

5.0-7.0%

C

Average

45-59

6.0-8.0%

D

Increased

35-44

7.0-9.0%

E

High

20-34

8.0-12.0%


The rating is done objectively by the Investment Committee. Points are given on various components of each investment opportunity that add up to the risk score. The risk rating is derived from the resulting score.

Component

Points

Initiator background

0-10

Solvency

0-10

Profitability

0-10

Loan to Value

0-20

Total Loan Coverage

0-10

Marketability

0-10

Cash Flow

0-10

Investment risks

0-20

TOTAL SCORE

0-100


DISCLAIMER

The purpose of our rating model is to allow objective comparison between various investment opportunities. The risk classification A to E is a snapshot and therefore no risks are excluded. From the information available in the pitch, investors must carefully weigh the risks that they can and are willing to accept and seek professional advice as needed. The risk classification is not an advice and therefore no rights can be derived from it.

The Max Crowdfund Investment Committee selects investment opportunities with the greatest care and objectively identifies the risks. Only investment opportunities that meet our quality standards are eligible to raise funds via the Max Crowdfund platform.

Every form of investment includes risks. You may receive back less money than you have invested. We therefore advise you to invest only a responsible portion of your assets in crowdfunding projects and to spread your investment over multiple projects to reduce your risk.


HOW DOES SCORING WORK FOR EACH COMPONENT?


FUNDRAISER BACKGROUND


Max Crowdfund performs due diligence on the fundraiser and their prior track record.

BACKGROUND

Score

Years of experience (max 3 points)

0-3

Number of similar deals closed successfully (max 3 points)

0-3

Credit rating of initiator

0-4


SOLVENCY


Solvency is the ratio between the debt and equity of the fundraiser and is calculated as:
Equity / Debt (including this loan request) * 100%

Solvency

Score

< 5%

1

 5% – 10%

2

 11% – 20%

4

 21% – 30%

7

 > 30%

10


PROFITABILITY


Profitability means the relationship between profit and the capital of the company. The better this score is, the greater the chance that the fundraiser can meet his/her future obligations for payment of interest and repayment. The profitability of the total capital is calculated as follows:
Profit before tax / total capital * 100%

Profitability

Score

 < 5%

1

 5% – 7,5%

2

 7,5% – 10%

4

 10% – 15%

7

 > 15%

10


LOAN TO VALUE (LTV)


The coverage value of the object is determined on the basis of the valuation report of a recognized appraiser. The coverage value is expressed as the so-called Loan to Value ratio (LTV). The LTV is calculated as follows:
[loan / execution value*] x 100% 

*) execution value is either the market value of property rented out or the market execution value depending on whether or not renting out is to be allowed in the mortgage deed, both values to be defined by the expert in the appraisal report of the property.

Notes: If the financing is provided on the basis of a second mortgage registration, the score is lowered by 5 points and a maximum LTV of 70% applies. Additional collateral is required in case the loan amount exceeds the foreclosure value or a second mortgage registration applies.

LTV

Score

81% – 90%

2

71% – 80%

4

66% – 70%

8

61% – 65%

12

56% – 60%

15

50% – 55%

18

< 50%

20


TOTAL LOAN COVER


The total loan coverage is the sum of mortgage given and additional securities (personal or business guarantee) provided. Additional securities are required if coverage value of the object is less than the execution value of the property as determined in the valuation report of a recognized appraiser. The total loan coverage value is expressed as the so-called Total Loan Coverage ratio (TLC). The TLC is calculated as follows:
([execution value + additional securities] / loan amount) * 100%

Notes: If additional securities apply these can be marked as material (5), mostly material (4), partly material (3), mostly moral (2) or moral (1). The score resulting from TLC is multiplied by the strength of additional securities provided. If no additional securities are applicable, a multiplier of 5 is used (which would require the execution value to exceed the loan amount to result in a score > 0.

TLC

Score

100% – 105%

1

106% – 110%

2

111% – 115%

3

116% – 120%

5

121% – 125%

8

126% – 135%

9

> 135%

10


MARKETABILITY


The marketability is determined by supply and demand in the market, by the location, by the accessibility and by the multi-functionality of the object. Points can be scored for each part.

Marketability

Score

Local demand is lower (0), equal (1) or higher (3) than supply

0-3

From object characteristics lower (0), average (1) or higher (2)

0-2

Easily accessible by public transport

+1

Optional use for other functions

+1

Can be rented or sold in parts

+1

Located in the center of a big city

+1

Available facilities nearby (restaurants, shops, schools and parks)

+1


CASH FLOW


The Debt Service Coverage Ratio (DSCR), is expressed as the income divided by the expenditures. Income refers to the revenues from rental and / or sale minus the operating costs such as costs for insurance, taxes and maintenance. The expenditures concern the sum of the interest payable and repayments on the loan. The DSCR is calculated as follows: Income / Expenditures * 100%

DSCR

Score

105% – 120%

1

121% – 135%

2

136% – 155%

3

156% – 185%

4

> 185%

5


INVESTMENT RISKS


The risks associated with real estate projects are diverse and specific to an object, the type and quality of the investment plan. These risks are identified on the basis of years of experience in the real estate sector.

Example risk identification questions:

  • Have the required permits been issued?
  • Is the contract for the execution of the construction or renovation present?
  • To what extent does the building contract provide sufficient certainty about the investment required?
  • Is the property sufficiently (pre-)let to bear the financing costs?
  • What is the vacancy rate of similar objects in the region?
  • To what extent is maintenance overdue?
  • What is the average duration of rental contracts?
  • Is the solvency of tenants sufficient (any rent arrears)?
  • What was the vacancy rate in recent years?
  • Has the sales agreement been concluded with a (future) buyer?

Identified risks are shared with investors for each investment opportunity when published on our platform. Identified risks are individually weighted based on their likelihood and the impact resulting in case the risk would occur.

From the overall risk profile, the score is determined on a scale from 0 (high risk) to 20 (minimum risk).

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