Secret Investor: Banks to Pass Rejected Loan Applications to Referral Platforms

Last post: Nov 4, 2016

On 1st November, the Bank Referral Scheme went live. This forces the high street banks to pass any loan applications from SMEs they reject to "referral platforms" which will then search for a suitable method to raise the required capital. This can include everything from peer-to-peer lenders, to building societies, to challenger banks. It will be interesting to see whether this will see an increase in the number of loans listed on P2P sites… and whether they will be worth investing in.


Assetz Capital – £176,010,024
Funding Circle - £1,627,807,520
FundingKnight - £31,220,000
FundingSecure - £65,180,968
Money & Co –  £6 million approx
Rebuildingsociety – £10,300,000
ThinCats - £202,103,000
Invest and Fund - £1 million plus
LendingCrowd - £7,409,781
ArchOver - £24,630,000

Zopa - £1,420,000,000
RateSetter – £1,518,297,052
Lending Works – £36,475,502


Assetz Capital
Lent to Date: £176,010,024 – fortnightly increase of £7,947,800 – 4.73% growth.
When this blog was compiled, there were 61 upcoming loans with 10 imminently due to be drawndown.
Highlighted Loan: Last week a £607k bridging loan to purchase a Scottish hotel was due to be drawndown. The enterprise had previously been owned by a coach operator which had restricted access to the venue to customers on their tours. The new owner intends to open the business up to the general public. If the value of the pound remains low, this should be a boost to the domestic holiday trade therefore this looks like a good venture however, with recent economic data being better than expected, many experts believe the GB's currency is undervalued and due to rise. Regardless of these underlying trends, Assetz Capital clearly have a great deal of faith in this operation as this loan has been assigned an interest rate of just 7.5% pa which is little more than the returns offered by the Great British Business Account that is covered by a Provision Fund.
Managed Accounts: The following accounts automatically distribute funds on behalf of investors across the platform's loans and are covered by a Provision Fund:
Quick Access Account (3.75% pa return); 30 Day Access Account (4.25% pa return); Great British Business and Green Energy Income Accounts (both of these offer a return of 7% pa).
Funding Circle
Lent to Date: £1,627,807,520 – fortnightly increase of £49,478,340 – 3.13% growth.
Another record smashing fortnight at Funding Circle with almost £50 million of capital raised.
There were 16 auctions ongoing when this blog was compiled.
Secret Investor's Activity: This remains the site which I have the most exposure to because they have the largest number of manually selectable loans.
Below are highlights from my activity in the past fortnight:
Highlighted Loan Invested in:
Debt Consolidation & Expansion Loan of £30k+ to CCTV business (C risk rating, 11.9% pa return). Loan is required to pay off existing vehicle finance and to fund upcoming contracts. These factors encouraged me to invest even though the 15 month old financial data indicated slim profits.
Highlighted Rejected Loan:
Expansion Loan of >£53k requested by online retailer (D risk rating, 13.8% return): Loan was required to purchase stock in greater quantities to increase profit margins. There was no further information provided and yet the credit rating was on the floor plus the business made a 6 figure loss last year. Without further information this appeared to be more of Z risk rating!
Defaulted Loans Update: Last week a borrower who ran a children's clothing store was set to default because they had been declared insolvent. I can't have had too much in my Funding Circle account waiting to be invested when this loan was listed as I only invested £20. Nonetheless, only 5 repayments had been made so – prior to any recoveries – I have lost most of that. To have failed so soon after taking out the loan it appears the company were right on the edge when they came to Funding Circle. Sometimes this feels more akin to giving to charity!
More bad news this week with another loan set to default because a borrower has called a meeting of creditors in a few weeks. I am still on course to make a monthly profit on my Funding Circle investments at the end of the current Financial Month (6th November) but only just.
Recently, I have had half a dozen notifications about more borrowers getting into difficulties so I expect the bad news will continue over the weeks ahead. Whether it is due to a post-Brexit downturn or my ever-growing portfolio, I do seem to be having more loans getting into difficulties. As Funding Circle are increasing the interest rates on their higher risk bands (see below) it suggests they are expecting an increase in the number of defaults.
Platform News: From next week, Funding Circle are making some pretty wide ranging changes to their interest rates. Those for the lower risk bands are reducing – investors will earn a return of just 4.9% pa lending to an A+ rated borrower for 6 months while the returns on higher risk offerings are increasing. A 5 year E rated loan will earn 21.9% pa.
On the face of it, as a "rate tart" who only invests in higher risk offerings, this appears good news for me however it also means Funding Circle regard these loans as riskier than previously. Certainly, the D rated loans I have seen recently were to companies making big losses who I refused to investing in.
Lent to Date: £31,220,000 – no change.
There were 0 auctions ongoing when this blog was compiled and there haven't been since September.
Lent to Date: £65,180,968 at the end of September.
Total updated monthly – we await the figure for October.
There were 17 auctions ongoing when this blog was compiled.
Highlighted Loan: A borrower was looking to raise over a quarter of a £million with security offered via a collection of paintings by French impressionist artists. The assets provided a loan to value ratio of just over 70% but investors were offered a return of 13% pa. I found the latter too tempting to resist and then, a few days later, I received the excellent news that the interest rate had increased to 15% pa.
Defaults: No further defaults. I am still waiting for the domain names and high-end car to be sold plus the loan to the Scottish Boatyard to be refinanced.
Money & Co
Lent to Date: £6 million approx. (latest available figure)
When this blog was compiled there were 0 auctions taking place.
Lent to Date: £10,300,000 – the site now only reports this figure to the nearest £0.1 million.
There were 2 active auctions when this blog was compiled.
Highlighted Loan: Food wholesalers returned to ReBS looking to raise £300k to consolidate existing borrowing. This is a most unusual loan as the security on offer doesn't cover the capital sought but ReBS believe the strength of the business – particularly the ongoing growth – makes the proposal worthy of investor's consideration. I have invested £40, half my usual amount, at 18% pa with everything firmly crossed.
Platform News: ReBS recently announced a 'loan discounts for security' scheme whereby borrowers who offer first charges against their property with a favourable LTV will receive a lower maximum bid rate in their auctions. This could be a minimum of 11% pa which is still quite high compared to other sites but much less than the 20% pa maximum on this platform. A lower return for less risk is hardly a new concept. It remains to be seen whether this will impact on the high number of borrowers who fall behind with their repayments at ReBS.
Lent to Date: £202,103,000 – fortnightly increase of £1,493,000 – 1.29% growth.
There were 5 active auctions when this blog was compiled.
Highlighted Loan: Loan of £140k to purchase a bar in Northern Ireland. Borrower has plans to grow the existing business by offering food and accommodation. They expect to service the payments comfortably. These will cover both capital and interest of 12% pa. The biggest issue with this loan is the high LTV of 87.5%. The borrower is also offering a Personal Guarantee and is said to be worth £700k but this could easily be eaten up if they got into financial difficulties. There are higher returns with lower LTVs over at FundingSecure.
Invest & Fund
Lent to Date: Over £1 million
When compiling this blog, we were unable to access the auction listings page as the website appeared to be down.
Highlighted Loan: Invest & Fund listed a large bridging loan last week. It was for over £2 million to purchase a plot of land within the London commuter belt which has planning permission for 8 houses. In its current undeveloped state the LTV is over 72% - slightly higher than the benchmark maximum over at FundingSecure. Although the borrower has been an accountant in the construction industry, the documentation relating to this proposition does not indicate any experience with managing a project of this nature therefore, in light of these two negative factors, a return of 9% pa is very low compared to the 13% pa available at FundingSecure.
Lent to Date: £7,409,781 – fortnightly increase of £106,000 – 1.45% growth.
There were 2 auctions taking place when this blog was compiled.
Highlighted Loan: The proprietor of a holiday home in Wales was looking to raise just under £85k to consolidate the borrowing undertaken to purchase a biomass boiler and to fund refurbishments. The problem with this loan was that no security was offered and the net assets did not cover the £625k outstanding from an existing loan let alone this one. Over the last 6 months, Lending Crowd have offered some appealing deals but a few rogue ones have been cropping up recently.
Platform News: It has been a big fortnight for this Scotland-based platform with the following 3 pieces of news setting the scene for future growth:

  1. They have received full authorisation from the FCA paving the way for them to offer P2P ISAs in the, hopefully, not too distant future.
  2. They have signed a partnership agreement with the Scottish Investment Bank. This should send more borrowers in their direction.
  3. They have launched an Autumn promotion which will see investors earning 2.5% Cashback (£125) if they distribute £5,000 in the primary and secondary markets within 30 days of signing up for the offer. While £125 is tempting, at present LC does not have enough loans for me to distribute £5,000 as thinly as I would wish, particularly with a significant proportion of my current investments being in arrears.

Default news: Due to their business being liquidated, I have had a third borrower fall into arrears out of a total of 42 LendingCrowd loans. None of the loans that are in trouble have been declared as "losses" even though steps are being taken to recover the debt.
Lent to Date: £24,630,000 – fortnightly increase of £453,000 – 1.87% growth.
There was 1 auction taking place when this blog was compiled.
Highlighted Loan: A company specialising in energy efficient ventilation systems that use heating recovery technology was looking to raise £260k to replace their current invoice factoring facility thus increasing profitability. Investors were offered a return of 6.75% pa which is less than is offered on other platforms in this section of the blog although, as is usually the case for this site, a higher level of security is provided via a first, floating charge on the borrower's Accounts Receivable and the loan is also insured.


This platform, which lists loans from multiple sites, was busier than in recent weeks with 9 auctions taking place today although many were from P2P lenders covered elsewhere in this blog.
Highlighted Loan: This originates from the Ablrate platform and is a loan to a company that provides funding to property developers. They are raising £330k to enable the development of a house in a desirable area of London to be completed. Aside from a Personal Guarantee, only a second charge on the property is offered as security however after the debt to the first charge holder has been taken into account, there is still £1.4 million of value in the property at current market rates. The return available to investors is a very healthy 14% pa.
Site was launched in early October.
There were 2 auctions taking place when this blog was compiled.
Highlighted Loan: After they rejected a few propositions, last week Peer Funding's very first loan appeared on their site. This was for £15k of unsecured borrowing to a café owner on the South coast who is planning a programme of refurbishments. The balance sheet suggested the loan was affordable over the 5 year term. Investors were offered a return of 11.8% pa (there doesn't appear to be any bidding mechanism) which is fractionally lower than the C risk band over at Funding Circle. The establishment in question appeared to be very busy when viewed via Google Streetview which is a good sign although, as it's early days, I have not committed any fund to the platform just yet.
Platform News: Following an injection of funding from venture capitalists Northstar Ventures, Peer Funding have opened a satellite office in the North East with a view to bringing more opportunities from that region to the platform. They already have a varied portfolio of 3 loans in the pipeline which is promising.


Lent to Date:  £1.42 Billion – latest figure available.
Returns: Zopa's 3 accounts offer 3.3%, 4.1% and 6.5% pa depending on the levels of access and whether or not they are covered by the Provision Fund.
Zopa distribute investor's money mostly to unsecured consumer loans.
Lent to Date: £1,518,297,052 – fortnightly increase of £27,432,378 – 1.84% growth.
Returns: Interest rates are set according to supply and demand. They currently range from 2.6% to 5.0% depending on the length of the investment. These figures have reduced by 0.2% and 0.5% respectively over the past fortnight.
Capital is covered by a Provision Fund. Ratesetter proudly boast that no investor has lost a penny since they launched in 2010.
Lending Works
Lent to Date: £36,475,502 – fortnightly increase of £472,368 – 1.31% growth.
Returns: 4.0% and 5.2% for 3 and 5 year investments respectively. Both figures have reduced by 0.2% over the past fortnight.
As well as a Provision Fund to cover investor's finances, this site also insures borrowers against redundancy, fraud, illness and accidents making this a very fair site for all concerned.
****Disclaimer: This blog contains the views of the Secret Investor. Your capital is at risk when lending via all P2P Platforms. You're recommended to speak to a qualified Independent Financial Advisor.