Independent research for the peer to peer lending market. Investors & financial advisers can conduct in-depth due diligence & comparison on P2P investments. Orca aims to drive the mainstream adoption of peer-to-peer lending (P2P) by providing the independent data, research, analysis and tools to empower advisers and investors.
This is a guest post from Growth Street, a peer to peer business lender which recently secured funding in excess of £7 million to scale its operation. Growth Street facilitates 30-day loans and automatically spreads investor’s capital across multiple borrowers.
Regardless of your opinion on Britain’s membership of the European Union, one thing most people are unlikely to dispute is the existing state of uncertainty that the UK finds itself in.
And in few places has the effect been felt so strongly as the stock market. The FTSE 100 kicked off 2019 down 1.6% after a year that saw the biggest annual decline since the 2008 financial crisis.
It may have left you thinking about how your P2P portfolio is balanced, too. A few questions might be occupying you at this time of the year: Am I adequately diversified? Am I satisfied with the returns I’m getting? And am I happy with the amount of risk I am taking?
One option could be to save with your high-street bank, which could offer guarantees on funds held in bank accounts of up to £85,000 as part of the Financial Services Compensation Scheme (FSCS). In recent years, P2P investing has been a useful avenue for investors happy to take more risk in order to make their hard-earned money work a little harder.
But, in these uncertain times, P2P investors may wonder whether they can continue to benefit. Could P2P lending secured against assets be the answer?
A secured loan involves money being lent to a borrower with a proviso that, if they’re unable to repay, the lender can recover and sell certain assets, which can then be used to pay part or all of any debt owed.
A common example of secured lending within P2P is property-backed lending, where loans are secured against a property. This security can help to mitigate the risk to investors, and potentially makes property-backed lending an attractive proposition for those not keen on investing in unsecured loans.
Invest in secured lending without exposure to property
Even though secured loans might seem less risky to investors, some individuals may wish to pick investments that aren’t exclusively secured against property.
There are other ways for P2P investors to look to target a return from secured loans. Some business-focused P2P platforms, like Growth Street, secure loans against borrowers’ assets and can also accept personal guarantees from the business’s directors.
When applying for a secured loan, then, a prospective borrower might be asked to provide security over all its assets, which will include stock the business already owns, and physical assets such as machinery and other equipment. This would mean that in the event of a default, the P2P platform facilitating the loan would potentially be able to recoup some or all of the money lent to the business. This wouldn’t necessarily be the case with unsecured loans.
Incorporating secured lending into your portfolio
With uncertainty affecting established investment classes like stocks and property, we think P2P lending secured against business assets could have an important role to play in investors’ portfolios through 2019.
Remember though, secured P2P investing still comes with risk. In the unfortunate event of a default, there’s still no guarantee investors will get any money back from their investment: capital is definitely still at risk. It’s also important to bear in mind that P2P lending – unlike the bank accounts we mentioned earlier – is not covered by the FSCS, so your capital is not protected.
Still getting used to being back at work? Already given up the new year’s resolutions? Settling in to the new year is never easy. This is why some peer to peer lenders are helping smooth the transition with great cashback offers. Find out more about LendingCrowd and Assetz Capital cashback offers below.
You can invest directly with these platforms or you can invest with Orca and benefit from the offers while diversifying across multiple major lenders, with minimal effort required.
IMPORTANT: You must be a new investor at the platforms to qualify for their offers. If you choose to invest with Orca in order to redeem an offer, but are an existing Orca customer, you will not qualify for the Assetz Capital offer. If you are an Orca customer who does not hold LendingCrowd in your Orca portfolio, you may qualify (details below).
LendingCrowd Cashback Offer
LendingCrowd is offering new investors the chance to maximise returns with a cashback offer.
2018 has been a big year for Orca. We launched the Orca Investment Platform, secured another funding round, and expanded the business in personnel and location. Not to mention, plans have been put in place for the launch of the Orca ISA and the ‘Self-Select’ portfolio builder, a complementary product to the existing ‘Model’ portfolio.
Here is our 2018 timeline of significant milestones…
February 2018 – Orca Investment Platform Launches
In February, we launched the Orca Investment Platform, an aggregator which integrates with multiple major peer to peer lenders, enabling investors to spread their capital and risk across platforms, sectors, and borrowers.
This was a landmark moment for Orca. Years had been spent building up to this point and a tremendous amount of effort had been invested by many, many people. Special thanks to those who supported us, you know who you are.
September 2018 – Seedrs Equity Crowdfunding Campaign
We ran our first ever equity crowdfunding campaign. Using the Seedrs platform and admittedly unsure of how successful the campaign would be, we were delighted to exceed our £500,000 target in under two days!
With more than 400 investors, spanning dozens of countries, the response from the crowd – including Orca users – has been an especially rewarding feature of the year.
December 2018 – Orca Secures Over £500,000 in Equity Funding
Following the close of the Seedrs campaign, and with contribution from venture capital funds, angel investor networks and private investors, Orca secured £574,280.
The funds will contribute to Orca’s development and growth plans for 2019.
Now, 2019, here’s the big pitch…
Q1 2019 – Orca ISA
The Orca ISA will be a first of its kind in the market where investors can build their own portfolio and hold it in an ISA. Current ISA rules stipulate that people can divide their tax-year ISA allowance of £20,000 between ISA (e.g, Cash, Stocks & Shares and Innovative Finance ISA) accounts however they wish. But, they may only subscribe current tax-year subscriptions to a single IF ISA each year. This means it is very difficult to build a diversified P2P portfolio which is wrapped in an ISA. Investors typically hold one P2P investment within an IF ISA, while the remaining P2P investments are held in taxable general investment accounts.
With the Orca ISA, investors can hold multiple P2P providers in a single IF ISA. Here are the key benefits:
Invest in the Orca Model portfolio suitable for hands-off investors or Orca’s Self-Select portfolio for the more active investor
Earn interest up to 6.5%
Earn returns tax-free
Diversify ISA money across multiple P2P providers
Transfer old ISA money
Invest ISA money at non-ISA P2P providers
We are already building a Wait List of investors eagerly awaiting the launch of the ISA.
In addition to the launch of the Orca ISA, we are also launching a new product to complement the existing Model portfolio product.
The Self-Select portfolio builder allows investors to implement their own strategies, selecting only the P2P providers and products they wish to hold in their portfolio. What’s more, investors can build their portfolio and hold it in the Orca ISA.
2019 – Integrate New Lenders
Throughout 2019 we’ll be seeking to introduce new lenders to the aggregator, offering investors greater choice and diversification. Updates on this will come in the new year.
2019 – On-board EU Investors
We are investigating how we can on-board EU investors, something which we believe will stimulate growth in the UK P2P market and offer EU investors a simple access-point to UK P2P lending.
Read about our upcoming product launches by clicking below
Finally, a special thanks to everyone who has invested with Orca, your support is very much appreciated; the value early adopters offer businesses is immeasurable and helps shape future product iterations, so thank you from the entire Orca Team. Have a fantastic 2019!
We interviewed Brickowner’s CEO, Frederick Bristol, to find out more about this growing ‘property investment platform’. Launched last year, Brickowner facilitates investment in asset-backed property loans. They recently closed an equity funding round on Seedrs and have big plans for 2019.
Can you provide an overview of Brickowner?
Brickowner is a property investment platform that provides access to exclusive, professionally managed property investments from £100 via a straightforward, no-nonsense format. We aim to curate the best property investments and make them accessible to everyone.
Why did you start Brickowner and what was your biggest challenge in launching the platform?
I worked in property for 15 years, before founding Brickowner. I saw the difficulties that many developers had in securing, managing and structuring funding while also witnessing many investors missing out on many investment opportunities due to high minimum thresholds and a lack of accessibility. By solving these two problems, our platform changes this. With a background in property, I had to rely heavily on my team to help build and test the technology of the platform, to ensure we delivered a market-leading site that supported both property investment managers and their investors.
What type of investments should investors expect to find on the Brickowner platform?
Property investments form a large market. The private rental sector is worth over £1.29 trillion; with our platform covering this and all other UK property markets we can source the best opportunities from a large pool of potential investments. We aim to offer both equity and lending opportunities across different property sectors like residential, hotel, industrial, student housing, and even cemetery investments.
No two properties are the same, and this is reflected in the investments. Being able to draw on our experience in property, we can ensure that every investment that makes it onto the platform weighs up an acceptable level of risk against the projected ROI. We aim to access target returns from property loans of 8% plus, and on equity investments of 20% plus.
Can you describe the investment structure and how this is linked to the underlying assets?
At Brickowner we currently have two types of investments,: equity and debt.
For equity investments, investors own a share of the property and can receive a return from rent, adding value and onward sale.
For property loans, investors lend while using the property as security, in a similar way to how banks issue mortgages. How an investment is structured depends upon the specifics of that particular investment; we ensure each one gives our investors the best possible terms.
What separates Brickowner from its competitors and why should investors sign up to the platform?
At Brickowner we put our investors first by being highly selective about the quality of the investments we offer. We ensure our platform is easy to use while securing exclusive investments. Where else could you invest in a holiday let development, hotel and cemetery, all from behind your laptop? All our investments are 100% asset-backed, and by doing the hard work, we take the hassle out of investing. No other platform does this.
Congratulations on closing a recent investment round on the Seedrs platform. Can you reveal any future product updates?
Over 2019 we plan to offer an auto-invest feature to allow our users to diversify their portfolios automatically. A secondary market will allow investors to sell their investment before the projected term. We are also looking to offer a number of bonds to enable our investors to hedge against the uncertainty posed by Brexit. Moreover, we plan to innovate further with other new investment opportunities that I hope will be firsts in the UK PropTech sector.
Thanks to Frederick for taking the time to speak with Orca.
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Despite only recently entering the peer to peer lending (P2P) market, easyMoney is a lender which most will immediately feel familiar with – easyMoney is part of easyGroup, famous for its airline, easyJet. Now offering a P2P platform, the easyGroup is extending its repertoire, providing investors with exposure to asset-backed property loans, typically bridging finance, returning 4.05% – 12% per annum (p.a).
In this review, we assess the easyMoney product after having invested funds across the platform.
easyMoney Key Details
Launched 2018 (founded, 2003)
Full FCA authorisation
Auto-lend/auto-bid: Classic, Premium, High Net Worth, Professional Investor
4.05% - 8% (product dependent)
15th of each month
Property, typically bridging finance
Asset-backed ; 75% max. LTV
Ongoing (withdraw early subject to liquidity)
Aims for 20% exposure limit per loan
Secondary market available
How it Works
easyMoney offers an auto-lend/auto-bid product, where capital is spread across a portfolio of property loans. Investors are not required to select the loans they invest in, however professional investors do have the option of ‘automatic diversification’ or a more tailored, ‘bespoke’ service.
The amount invested determines the product, and therefore the return.
High Net Worth
We ran a test, investing £500 across the platform. Once signed up and funds deposited, the £500 was lent out approximately one week later.
The time it takes to deploy funds is a key consideration. The longer funds remain un-lent, the longer capital is sitting idle not earning interest. For a new platform like easyMoney, this could be even more of a concern. In saying that, funds were deployed in roughly one week, which is reasonable.
easyMoney aims to diversify funds across multiple loans. They do this by selling a portion of an investor’s portfolio and re-investing into new loans on the platform.
Initially, the portfolio will likely be concentrated on a small number of loans. Diversification can therefore take months to achieve if, for example, an investor was seeking 10-20% exposure to a single loan.
In the test we conducted, we were allocated a single loan at the point of funds being invested. After approximately three weeks, two new loans were introduced to the portfolio; the principal £500 investment was split across three loans.
All loans are asset secured. The loan-to-value (LTV) ratios for the specific loan type can be viewed in the table below:
70% (Gross Development Value)
In the event of default, easyMoney can step in and repossess the security, repaying investors out of the sale of the property.
With ‘Development’ loans, there carries greater risk; should the development become compromised, or a prospective sale of the development fall through, this could result in investors waiting longer to earn their returns or, in extreme circumstances, easyMoney stepping in to complete the development.
To access funds before the end of the loan term (maturity date), investors can choose to sell some or all of their lent funds on the easyMoney secondary market.
In the test we conducted, the full value of the account (capital plus interest) was sold within 1 day. This is very acceptable considering easyMoney is a new entrant in the market.
While the test proved the efficacy of the easyMoney secondary market, there’s no guarantees when it comes to gaining early access to funds, it is dependent on liquidity, and for new entrants achieving liquidity can be a challenge.
Limited track record to evaluate (launched early 2018)
Acceptable time to deploy funds, mitigating cash drag concerns
Acceptable security package, although ‘Development’ loans carry greater risk
Diversification limited, takes time to build up holdings
Interest rate low, specifically on ‘Classic’ product
Higher rate products require significant investment, £10,000 for ‘Premium’ product (7.28% p.a), and £100,000 for ‘HNW’ product (8% p.a)
Concerns regarding liquidity
A clear consideration is the fact investors are required to invest significant sums to achieve higher returns. The difference between the ‘Premium’ and ‘High Net Worth’ product returns doesn’t feel commensurate with the difference between minimum investment amounts.
The ‘Benefits’ section of the website may incentivise investors to dip their toe. The easyMoney Plus Card provides discounts at well-known retailers, cinemas, and so on. However, a £1,000 investment is required.
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easyMoney is perhaps most comparable with Octopus Choice, the subsidiary of a large group – Octopus Group – and a well-known P2P property lender facilitating bridging loans (smaller proportion of loan book). Both providers have low minimum investments and almost the same target return (in terms of the easyMoney ‘Classic’ product). Key differences surface, namely diversification, which is limited at easyMoney, and uncertainty over liquidity. In time, easyMoney will build up a track record, which is important when there are other providers offering similar products and who have been in the market longer.
The UK’s three largest consumer lending P2P platforms Zopa, RateSetter and Lending Works have all raised investor rates in the past year. For the 3 years prior all three have had their rates squeezed as competition from traditional lenders and new bank lenders, such as Sainsbury’s Bank, increased.
With heightened competition for borrowers, investors on these consumer lending P2P platforms have had to accept a lower return for the same risk. It’s therefore a welcomed relief to see a trend of increasing returns emerge in the past year.
The chart below shows this general trend for RateSetter’s 5-year product.
Figure 1: RateSetter’s 5 year market rate
Lending Works increased their rates initially in January 2018 and subsequently again in November 2018. Rates are now the highest they have been in 3 years.
Figure 2: Lending Works 5 year and 3 year rates
Similarly, in September 2018, Zopa increased their rates across both their core and plus products from 4% to 4.5% and 4.6% to 5.2% respectively.
Although not meteoric, these uplifts are positive for investors and brings returns of P2P consumer lending closer to returns in the P2P business lending sub-sector. Both RateSetter and Lending Works products come with an added benefit of a fully functioning provision fund, increasing the predictability of investor returns. The key question I have is whether this is a better deal for investors or are investors exposed to more risk?
With higher investor rates we would expect higher borrower rates, or an expected fall in defaults. Lending Works and Zopa publish their borrower rates as shown in the table below. It can be seen that Lending Works borrowers are paying almost 2% more in 2018 compared to 2017, while Zopa borrower rates have dropped from 2017 to 2018.
Figure 3: Weighted Average Borrower APR of Loans Originated that year
If the expected default or bad debt (default minus recoveries) rates at the platforms were to rise during this period this would indicate that an increase in returns is a result of an increase in risk.
Figure 4: Projected default and bad debt rates
Lending Works are forecasting that their bad debt rate will drop from 5.6% in 2017 to 4.3% in 2018. Although borrowers are paying more for their loans, they expect a lower bad debt rate, implying that investors are taking less risk for the higher returns received.
Similarly, Zopa have reduced their default expectations in 2017, 4.52% to 2018, 3.32%. This is in line with Zopa reducing the amount of lending in their higher risk, higher return D-E category loans announced in August 2017. Similarly, this would imply that investors are receiving higher returns for less risk.
RateSetter’s expected bad debt rate is anticipated to increase this year, indicating that investors might be taking on more risk when investing on this platform. It’s worth noting that RateSetter lends to both businesses and consumers with 30% of their 2018 origination to date relating to business lending.
On the Lending Works and Zopa platforms, an increase in returns but a decrease in expected defaults suggests that investors are getting a better return for less risk. There are two other potential reasons for this. Firstly, there might be an imbalance at these P2P platforms with an oversupply of borrowers needing capital vs. the amount of people wanting to invest. This would drive up investor rates. Secondly, the cost of borrowing is rising in general as a result of two interest rate rises in the past year. The competitive landscape has changed with all consumer borrowers now paying more as a result of these interest rate rises. How P2P will fare as interest rates rise is a point continuously challenged by sector onlookers and this could be an early sign that P2P rates will rise in line with interest rates.
This post is a condensed version of our ‘Octopus Choice Investment Report’. We produce these in-depth reports to support with due diligence of the peer to peer lending (P2P) market. This report is designed to help investors, as well as financial advisers, get comfortable with Octopus Choice. If you have any questions, whether investor or adviser, please get in touch, email@example.com.
The full Investment Report and Executive Summary can be downloaded by clicking the buttons below.
Octopus Choice (“Octopus” and “Platform”) is a UK-based peer to peer lending (P2P) platform offered by Octopus Co-Lend Ltd, a subsidiary wholly owned by Octopus Capital Ltd (“Group”). Octopus Choice is the innovation of the Octopus Group and is distributed to financial advisers and DIY investors. Octopus Choice directly connects UK property professionals with investors seeking a secure and stable return.
The insights detailed below derive from loan book analysis conducted on Octopus Choice’s historic loan book, with data correct at 16th October 2018.
The platform offers an “auto-bid/auto-lend” product where investors’ capital is automatically allocated to a mix of loans, creating a portfolio comprising approximately 10-60 loans. Octopus initially funds loans approved onto the platform, before transferring loans to investors as their capital flows onto the platform. This reduces the time it takes for funds to be lent out as there is a pool of available loans, it also ensures borrowers receive funds in a timely manner. Investors do not have the option of building their own portfolio of loans – Octopus holds discretion over the underlying assets invested in, and the asset allocation.
Table 1: Investment Details
All Octopus loans are secured against tangible assets, with a first legal charge over residential or commercial property; 97% of loans are secured on residential property. Octopus makes conservative loans, with an average loan-to-value (LTV) ratio of 62% and with a maximum LTV of 76% for residential loans and 65% for commercial loans. Octopus also invests alongside investors in 5% of each loan in a ‘first loss’ position, meaning the platform would lose capital and interest before any investors should a borrower default and the asset securing the loan fails to recover the debt owed.
The minimum, average and maximum loan-to-value (LTV) ratios for the varying loan types can be found below.
Octopus Choice (Octopus) has facilitated over £315 million worth of loans since launch in 2016. The chart demonstrates an increase in origination year on year, with significant growth 2016 to 2017 (167% growth); while growth subsided 2017 to 2018 (33% growth). As loans repay, the Principal Repaid metric will begin to outweigh the Principal Outstanding metric. For 2018, 91% of loans are live, in circulation, this compares with 2016 where 74% of loans have redeemed (completed).
Chart 1: Principal Outstanding v Principal Repaid. Source: Orca Analysis of Octopus Loan Book.
Investors can expect a target rate of return of 4% per annum (p.a), which is gross of tax, and paid monthly with the option of re-investing interest for compound growth or withdrawing for income. The actual rate of return depends on the individual loans held within the investor’s portfolio and can vary over time as new loans are automatically invested into. The chart below confirms Octopus Choice’s ability at forecasting their returns accurately. The platform has narrowly exceeded the target return each year, demonstrating the stability in their returns.
Chart 2: Octopus Choice Net Returns v Estimated Returns. Source: Orca Analysis of Octopus Loan Book.
Octopus loans are predominantly Buy-To-Let (BTL) – 55% of total historic loan book value – but the platform also offers Bridge-To-Let (B2L), Bridge and Commercial loans. Commercial loans typically include shops, mixed use properties, pubs, industrial units, etc. Borrowers typically borrow £500,000 or more; the average borrowed according to the historic loan book is £681,755. The range is £55,300 to £7,602,000.
The chart below displays the breakdown of the loan book by loan purpose.
Chart 3: Loan Type Breakdown. Source: Orca Analysis of Octopus Loan Book.
Defaults & Recovery
Octopus Choice does not model an expected default rate into its interest rate calculation for investors. The platform will review its position on this when the regulator (FCA) and peer to peer lending industry define a standard definition for defaults.
Octopus defines a ‘default’ as a loan in which the borrower has missed two calendar months of interest payments, or the loan has run over its initial term. In this event, investors cannot buy or sell loan parts. Octopus investors have suffered no capital losses since the platform launched. However, past performance is not a reliable indicator of future results.
All Octopus loans repay the principal investment at the end of the term, when the loan matures. This means an investor’s capital (principal) is tied up for the duration of the loan, unless they choose to sell their holdings early to withdraw cash; selling loans early is subject to liquidity.
NB: Loans are typically short term, with an average term of 26 months across 463 loans (total loan book).
There is no minimum investment period, therefore investors can request to withdraw at any time, subject to liquidity, without incurring charges. Loan parts will usually be sold to new investors in order to facilitate withdrawal, but Octopus may buyback loan parts to ensure quick access. 95% of liquidity requests have been processed within 5 days, however, there are no guarantees.
There is a section in the report dedicated to helping advisers evaluate Octopus Choice, paying particular attention to the adviser-friendly features of the product but also the considerations of recommending such a product.
In summary, some of the benefits include:
Loans underwritten with 1st charge over physical assets
Octopus invests in 5% ‘first loss’ position on each loan
Exposure to varying property loans
Buy-to-let loans account for 55% of the loan book
Bridge-to-let loans account for 24% of the loan book
Bridge loans account for 12% of the loan book
Commercial loans account for 9% of the loan book
Advisers & clients can login to a centralised dashboard to view client accounts
Some of the considerations advisers should evaluate include:
No FSCS protection
P2P loans are not protected by the Financial Service Compensation Scheme (FSCS)
All Octopus loans are made into the UK property market, typically buy-to-let
Octopus offers support to advisers regarding client suitability assessment
If you’re an adviser, click the button below to read the full report, paying particular attention to section 9.0
Octopus Choice has made impressive progress since launching in 2016. Fairly young, relatively speaking, the platform has already facilitated over £300m worth or property loans, with zero losses (past performance is not a guarantee of future results), delivering on their target 4% per annum returns. For advisers, Octopus Choice is the P2P provider most will heard of and, indeed, most will use. The platform is part of the Octopus Group; a major presence in the intermediary market, delivering products and services for the past 20 years. A platform’s stability is a primary concern, and Octopus Choice appears as if it will stand the test of time due to its backing, but also its demonstrable ability to deliver stable returns while lending conservatively. Concerns around market concentration should be considered, and also the lack of Financial Services Compensation Scheme protection on lent funds, of course.
Octopus Choice is held within the Orca portfolio, to find out more about how we structure the portfolio, get in touch or visit our FAQs section
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Growth Street is a peer to peer lending (P2P) platform with a unique slant on the business lending market. Borrowers are offered a line of credit similar to that of an overdraft and investors are able to invest in loans which are sanctioned under the line of credit agreements. The beauty of investing through Growth Street is that the term of the loans is very short, under 30 days in duration, which delivers inherent investor liquidity into the product. Investors are able to access their funds within 30 days when loans are paid off or reinvest capital into new loans. We’ve started a trial of the investment product and keen to provide some feedback.
Total Investor Deposits
Yes, loan terms are 30 days so investors can gain access to funds within 30 days.
Business loans (SME)
Lines of credit to the borrower
Asset security on all loans
No investor fees
Figure 1: Growth Street key facts
Growth Street’s Loan Loss Provision (Provision Fund) is central to its investor offering. Similar to RateSetter’s Provision fund, the Growth Street Loan Loss Provision pays investors automatically in the event of a borrower being late with a repayment or when it is likely that the original funds lent are irrecoverable.
The availability of the Loan Loss Provision mitigates the need for diversification across a large number of borrowers on the platform, as defaults are automatically covered by the fund. The risks are the same whether your funds are matched to one borrower or many borrowers.
My entire £1,000 investment was matched within half a day to a single loan contract with a 30-day term. Normally, this level of diversification would be a concern but if the repayments are late the Loan Loss Provision fund should cover the loss.
The loan I was matched to has a rate of 5.18% which is slightly below the advertised rate of 5.3%. The advertised rate assumes that investors’ funds are continually reinvested into new loans with no time lag in between one loan being repaid and another starting. Over the year it is possible that my funds will be matched to slightly higher rate loans to achieve the 5.3%, however it is unlikely that the funds will be continually matched with no time lag. With this loan, my funds were matched within half a day, which is impressive, and if this performance continues the impact on returns will be marginal. If it takes 30 days to match to a new loan, each month the impact will be great.
Figure 2: Growth Street Dashboard
What are the risks?
The principal risk when investing on the Growth Street platform is that a large number of borrowers default on their loans which resultantly consumes the Loan Loss Provision. If this was to occur, Growth Street would call a ‘Resolution Event’ where all outstanding loan contracts are assigned to the Loan Loss Provision and all repayments are collected by the Loan Loss Provision. Again, this works in a similar manner to the RateSetter provision fund.
The Loan Loss Provision has a current balance of £1.1 million, providing coverage to 5.9% of the total loans outstanding. Essentially, 5.9% of the amount currently lent out would have to default before the Loan Loss Provision is consumed. The expected default rate across the loan book is 3.3%.
The other major risk when investing with Growth Street is that the company becomes financially unstable and ceases trading. Although Growth Street has a fully funded run-off plan that would kick in allowing for the borrowers to continue with their repayments of their loans, this event would cause turbulence for investors.
What are you investing in?
Growth Street provides a line of credit to businesses for working capital and cash flow purposes. It works like an overdraft where businesses can dip in and out each month to fund the purchasing of stock and hiring. Borrowers typically pay 7.2% of lending amounts ranging from £25k to £2m. Most loans are secured by a charge on all business assets, but in some instances Growth Street may ask the directors to provide personal guarantees, alongside or instead of a debenture.
The sign-up process
With only one investor product to choose from the process of investing is simple and funds appear to be matched very quickly. The website is clear, factual and provides an in-depth overview of what the investor is investing in. Investors are, however, required to self-certify as a high net worth, sophisticated investor or restricted investor and complete an appropriateness test during the sign-up process which takes extra time.
Growth Street benefits
Access within 30 days linked to the loan terms
Provision fund provides diversification across the loan book and provides consistent stable returns
£70.6 million of cumulative lending since launching in 2016
Very simple product offering
Factual, descriptive website
Hands off investing
Growth Street considerations
No Innovative Finance ISA
Limited control which might not appeal to certain investors
The provision fund reduces investor returns as a % of the borrower repayments sit idle waiting to cover defaults
Longer sign up process
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One of the big push backs within the peer to peer lending sector is liquidity. By offering borrowers lines of credits, loan terms are 30 days or less. It’s a unique proposition that has liquidity inherently built into the investment offering. The presence of the provision fund further mutes the impacts of any defaults providing stable, consistent returns, which combined with a hands-off approach to investing, might appeal to investors who are more time precious.
As an added bonus, those who sign up and invest £5,000 will receive £200 cashback.
Proplend is a UK peer to peer lending (P2P) platform which facilitates commercial property loans. Historically, investors with Proplend have had to manually select the loans they wish to invest in. Now, the platform has launched an ‘Auto-Lend’ product alongside its ‘Manual’ product, enabling the automatic investment of cash into the least risky loans available. Here are the details.
Key Platform Details
Full FCA authorisation
Manual or Auto-Lend
5-12% (product & loan dependent)
1st charge over property ; conservative LTV ratios
Up to 5 years (loan dependent)
Manually achieved or automatically achieved (Auto-Lend)
Secondary market available
10% of gross interest rate + 0.5% of loan parts sold on secondary market
1st charge on property securing Tranche A loans (least risky)
5% (before bad debt and taxes)
Up to 3 years
No more than 20% account value in each loan after £5,000 invested
Secondary market available
10% of gross interest rate + 0.5% of loan parts sold on secondary market
Table 2: Proplend ‘Auto-Lend’ Details
How it Works
Proplend investors can enable Auto-Lend by clicking the button in their Proplend account. Once enabled, any cash available in the account will be swept and automatically allocated to ‘In Funding’ and ‘Proplend Loan Exchange’ (PLE) Tranche A investments.
Investors can expect an average rate of return of 5% and will be allocated to the least risky loans on offer.
Investors must ‘Turn On’ Auto-Lend on their Lender Dashboard
With Auto-Lend enabled, funds are allocated to ‘In Funding’ or ‘Proplend Loan Exchange’ Tranche A loans.
In Funding is the primary market where new loans are launched. It runs every morning (assuming loan availability).
Proplend Loan Exchange (PLE) is the secondary market where loan parts can be bought and sold. It runs every evening (assuming loan availability).
There are three ways funds can be deployed under Auto-Lend, each has implications on the time it takes for funds to be matched to loans:
Invest principal plus accrued interest to receive loans from PLE
Investors must fund the accrued interest on a PLE loan to be allocated it
PLE is fairly active, with loans regularly on sale. The PLE runs daily after 3pm.
Deployment achieved within a day
Invest principal only and await a PLE loan’s next interest payment date
As soon as the next monthly interest payment has been made, a loan’s interest is reset to zero at which point principal can be allocated
Deployment depends on when the next loan interest payment date is. This could take several days.
Invest principal only and await In Funding (new) loans
If an In Funding loan launches before a PLE loan reaches its next interest payment date, investors will be allocated to the In Funding loan
Limited new loans on Proplend. Deployment could take several days or weeks.
Proplend categorises loans into three tranches relative to their riskiness; primarily the level of loan-to-value (LTV) ratio. The tranche determines the interest rate received.
Interest rates displayed below are average annual interest rates after fees, but before bad debt and taxes, and assume no interest is reinvested.
Auto-Lend & Manual
Table 3: Proplend Tranches
With Auto-Lend enabled, funds are allocated to Tranche A loans. Auto-Lend grants priority access to Tranche A In Funding loans before they’re made available to Manual investors.
Token Queue Process
A token creation process is used where available cash balances are divided into £1,000 parts and each token goes into a queue in the order the investor joined the platform. All enabled accounts with £1,000+ available cash will be allocated a loan part before any account has a second token processed.
The number of loans an investor is allocated to depends on the amount invested. Proplend has a 20% concentration limit, meaning no more than 20% of a total account value will be allocated to a single loan, assuming the account value is £5,000 or more.
£20,000 cash available. Auto-Lend can only allocate up to £4,000 (20%) to any one loan. Diversification across 5 loans achieved (subject to availability).
Scenario 2: Existing loan holdings & cash
£16,000 invested across 4 loans (any tranches) and £4,000 cash available. Auto-Lend looks to invest all the cash (20% of the account value) into the next available Tranche A loan.
Scenario 3: New account, cash deposit
£1,000 deposited as cash. Auto-Lend allocates to next available Tranche A loan.
NB: Enabling Auto-Lend with existing holdings may mean available cash is auto-invested into relatively few loans and larger amounts.
Note to readers: I personally invested money and had funds matched the same day. I invested enough to cover the principal and accrued interest of a single PLE loan. My gross interest is 6.4%.
There are two main steps to accessing funds early when Auto-Lend is enabled:
Step 1: Turn off Auto-Lend on the Lender Dashboard (see pic above)
Step 2: Choose the loan(s) you want to sell on the Proplend Loan Exchange
There are no guarantees funds can be accessed early. However, Proplend does maintain a fairly active secondary market, so loan parts can be traded quickly in normal conditions.
Hassle free investing, no manual selection required
Allocation to least risky loans
Active secondary market to sell holdings
Limited diversification on low investment amounts
Uncertainty over time to deploy (invest) funds
Reduced rate of return
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Proplend is adding greater value for its investors by introducing their Auto-Lend function. Investors can still select individual loans at Proplend, by way of the Manual function, but can also have spare cash automatically swept and allocated to the least risky, Tranche A, loans offered on the primary and secondary markets. Proplend’s real limitations lie in the availability of loans, meaning diversification can be hard to achieve. Higher value investors should be adequately diversified, but generally it may take some time to build up holdings.
It’s not long until the spookiest night of the year… But your investments may fear not, we’ve just announced a Halloween treat for new investors to enjoy!
We are giving away Amazon Echo Dots to new investors who open an Orca Account and invest between now and midnight on Halloween (31st of October 2018).*
*Existing Orca investors do not qualify for this gift.
Whether you plan on keeping it for yourself or re-gifting it to your nephew this Christmas, you can invest at any level to receive this treat. So long as you make your first deposit before the deadline, your free Amazon Echo Dot will be sent to you after your Orca Account has been funded and active for 30 days. You can read the full terms and conditions here.
Jordan Stodart, Co-Founder of Orca, stated “this is our first Halloween since launching the Orca Investment Platform in February. We are delighted with the response to the product so far, but are also continually looking at ways to further enhance it; thanks to our users for their invaluable feedback helping shape our ideas. As we enter the festive season, we want to offer new investors a treat to say ‘thanks for sharing our vision and choosing to invest with Orca’.”
Stodart goes on to say, “we’re reaching the end of our Seedrs equity fundraising campaign and are excited to put the funds to good use…there are some major developments in store at Orca! For now, we hope you new investors enjoy this treat from us”.