Today we bring you a cautionary tale. But before we get into the detail of a report on how things can go wrong, we thought we’d take the opportunity to revisit our own credit model and the steps Money&Co. takes to avoid bad debts.
Before a company can come on to the platform and solicit credit, we operate a series of filters.
First, we require the borrowing company to have a track record of profitability (at least three years of filed accounts demonstrating this – though the average age of our borrowing company is over 14 years).
Second, we take a first charge on the assets of the company. If a loan goes bad, we have the right to go in to the company and take possession of those assets and sell them to reimburse lenders. Then, our credit committee run the rule over the company’s management and business model before making a decision.
Edit, 5th March: As yet, across some £15 million facilitated since 2014, we have had one bad debt, plus some loans that have had to be restructured. This is beneath the one per cent default rate sketched into our business plan on launch. We previously stated there had been no bad debts. This was an error, for which we apologise.
P2P Finance News reports on problems at Crowdstacker. Below is an excerpt from the article, with the full article available by clicking here.
CROWDSTACKER investors have criticised the peer-to-peer lending platform, amid concerns that it may struggle to recover funds from a secured loan that went into default.
Assets owned by the bankrupt borrower’s subsidiaries were sold without Crowdstacker’s agreement, with the proceeds going to another creditor – raising questions about whether the platform will be able to recover investors’ money.
Loan Offer Latest
Money&Co. has grown relatively slowly (and received some criticism for this) since it began facilitating loans in 2014 – Just under £15 million facilitated. A major reason for that is the conservative approach to credit analysis and company vetting that we take, For now, at least, enough said. As we write, the latest loan offering has just closed, with more to follow shortly.
A Process Guide To Innovative Finance ISA Investment
Money&Co. lenders have achieved an average return of more than 8 per cent gross (before we deduct our one per cent fee). That figure is the result of almost £15 million of loans facilitated on the site, as we bring individuals looking for a good return on capital together with carefully vetted small companies seeking funds for growth. Bear in mind that lenders’ capital is at risk. Read warnings on site before committing capital.
All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (IFISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income. Our offering is an Innovative Finance ISA (IFISA) that can hold the peer-to-peer (P2P) business loans that Money&Co. facilitates. For the purposes of this article, the terms ISA and IFISA are interchangeable.
So here’s our guide to the process:
The ISA allowance for 2018/19 is unchanged from last tax year at £20,000, allowing a married couple to put £40,000 into a tax-free environment. Over three years, an investment of this scale in two Money&Co. Innovative Finance ISAs would generate £8,400 of income completely free of tax. We’re assuming a 7 per cent return, net of charges and free of tax here.
Once you have made your initial commitment, you might then consider diversifying – buying a spread of loans. To do this, you can go into the “loans for sale” market. All loans bought in this market also qualify for IFISA tax benefits.
Risk: Security, Access, Yield
Do consider not just the return, but the security and the ease of access to your investment. We write regularly about these three key factors. Here’s one of several earlier articles on security, access and yield.