Telegraph Hub: How does peer-to-peer business lending work?

Author

Date

4th November 201628th July 2020

ArchOver has teamed up with The Telegraph to produce a series of articles to help educate investors on the UK Peer-to-Peer Lending sector. In a brave new economic and financial world, understanding different ways of managing your money is key to success. P2P Lending can help both individuals and businesses navigate a post-Brexit world, with the reassurance that it is a secured and effective method of protecting and growing your money.

Despite being a relatively new phenomenon, peer-to-peer lending (P2P) is already transforming the way in which businesses grow and income-seekers invest.

The concept of using the internet to bypass banks and lend money directly to businesses and individuals has only been around since 2005. However, a recent report from Cambridge University showed that more than 12 per cent of new lending to small and medium businesses came from the peer-to-peer sector, with 20,000 small and medium-sized businesses raising money this way in 2015.

In fact, peer-to-peer lending to businesses is the largest part of the UK’s burgeoning alternative finance market, with a 194 percent average growth rate between 2013 and 2015.

According to Angus Dent, CEO of P2P lending company ArchOver, this growth has occurred because P2P brings together two different needs – the need for businesses to get finance and the need for ordinary people to find income.

What rates can you earn via P2P lending?

The rate you get will depend on the length of time you lend to the business, the amount you lend and the security behind the loan.

According to rates on comparison site Moneysupermarket, these rates include:

• 4.25 per cent for an easy-access scheme lending to businesses

• 3.5 per cent lending to individuals with easy access to loans

• 2.25 per cent lending to property developers for a year

• 7 per cent lending to small and medium-sized businesses over the long term

Obviously, these are far higher rates than you would get in the bank, but it’s worth remembering your money is at risk of not being repaid and your investment is not covered by the Financial Services Compensation Scheme (FSCS).

How can you invest?

P2P business lending can be carried out through several different kinds of accounts, to maximise returns:

• Directly with the P2P provider, with the first £1,000 of your returns being tax-free (£500 for higher rate taxpayers) in the same way as cash

• Through a self-invested personal pension (SIPP)

• Through an Isa, known as the Innovative Finance Isa for P2P providers who have passed FCA checks

How does it work?

For investors, getting cash returns from P2P is a simple process with a number of steps.

You research P2P and decide how much to invest

Peer-to-peer lending is suitable as part of a diversified portfolio for those who understand that they may not get all of their money paid back.

You decide on a PTP lender to work with

Some things to check include: how much you will have to lend, when you will get your money back and how much you understand about who you’re lending to. Some companies choose to spread your money between many businesses while others allow you to lend to only one business. Some P2P sites charge fees and others do not.

If, as is the case with ArchOver, you lend on a loan-by-loan or business-by-business basis check you are happy with its business model, which is available on their platform, and do your research.

Check your security

Different P2P lenders have different approaches to ensuring your money is paid back. Some have a contingency fund and some allow you to choose to lend to businesses or individuals who have been risk assessed. ArchOver’s ‘secured and insured’ model ensures the Accounts Receivable of a business and takes a charge over this, which is registered at Companies House, to give you extra security. They also require the business to take out insurance on the accounts receivable.

Make an application

You’ll need to pass credit checks and give statutory information before you lend through a P2P platform.

Lend the money

Lending your cash on a platform for between three months and five years. You will receive interest at regular intervals and your money back at the agreed time provided the borrower does not default. You’ll need to tell the taxman about interest received unless your P2P investment is in an Isa or SIPP.

Telegraph Hub: Is your pension enough? Three ways to make the most out of your money

Author

Angus Dent

Date

24th October 201628th July 2020

Getting a good return on your investments is more crucial than ever as you approach retirement.

With the base rate at record lows and living costs high, putting together a nest egg is difficult while you are working. What’s more, when working people begin to approach retirement, they are often encouraged to switch their investments into lower-risk assets, a process known as “lifestyling”.

This can further decrease the chance of a good pension pot because these lower-risk assets, such as government gilts, often provide very low returns.

Making it last

Once pensioners reach what is called the “decumulation phase” – when they retire and start to use their savings to live on – the problem continues.

Unless they buy an annuity, which gives a guaranteed lifetime income, pensioners must use their nest egg to meet their living costs for the rest of their lives. And annuities are by no means fail safe – rates have halved in the past 10 years and unless pensioners continue to invest and gain returns, their pension pot is likely to fall in value due to inflation.

With this in mind, investors must consider all the options to ensure their pension saving is adequate and that they make the most of their savings approaching retirement without taking undue risk.

1. The traditional route

A portfolio of shares and bonds or funds is a traditional option.

Returns on a share and bond portfolio will vary, and the value of your money can go up as well as down. Choosing shares that pay dividends can help to swell your nest egg over time. The latest Barclays Equity Gilt study shows that the average share investment would have returned 2.3pc per year after inflation in the past 10 years, with bonds returning 3pc.

2. Buy-to-let

Buy-to-let property has been a popular option for pensioners wanting to make the most of their nest eggs. However, a raft of tax changes including higher stamp duty on second properties and a phasing out of buy-to-let tax relief makes this less attractive.

There are also costs associated with buy-to-let including budgeting for void periods. Rental yields can be high, with recent figures from Lendinvest showing that buy-to-let hotspots including Gloucester and Blackburn have yields at over 4pc.

3. Peer-to-peer lending

Peer-to-peer lending is another option, which may produce a higher return, but also puts your capital at risk. Peer-to-peer sites lend money to individuals or businesses and can offer rates of up to 7pc.

Different peer-to-peer sites offer different forms of security for your cash and different lending models, so it’s important to understand how the system works.

ArchOver, which specialises in business peer-to-peer lending, offers rates of between six and seven per cent, and lenders can tie up their money for as little as three months – although 12 months is more likely.

Angus Dent, chief executive at ArchOver, says he believes the product is suitable for pensioners who have done their homework and who could use peer-to-peer lending as part of a diversified portfolio. “Our oldest lender is in his 90s,” he says.

How ArchOver Works.

ArchOver matches lenders and borrowers so that lenders earn a competitive rate on their money and borrowers can get the money they need for their business to grow. As well as doing their own due diligence on the companies on their platform, loans made through ArchOver are “secured and insured”.

The security policy involves ArchOver, on behalf of its lenders, having the first right to the Accounts Receivable of each borrower, which they are required to keep at a level of 125 per cent of the loan. ArchOver’s charge over the Accounts Receivable is registered at Companies House. A secondary policy requires the borrower insuring the Accounts Receivables – the money owed by their customers for goods and services that have already been delivered – against the loan.

If a customer of the borrower pays unduly late, or doesn’t pay at all, the insurance company pays out to the lender.

Telegraph Hub: How P2P can help your business grow: five key incentives

Author

Angus Dent

Date

20th October 2016

Peer-to-peer lending is becoming an increasingly popular way for businesses to get the money they need to expand.

According to recent figures from the Cambridge Centre for Alternative Finance, alternative finance business lending is 12pc of the market for lending to small businesses in the UK.

“These new channels of finance are increasingly moving mainstream,” says Robert Wardrop, executive director of the Cambridge Centre for Alternative Finance. Its 2015 report stated the sector had grown 84pc year on year and facilitated £3.2bn of loans, donations and investments.

Here are five ways in which peer-to-peer lending can help businesses.

1. Speed

Getting a loan from a high street bank can be a slow process, with many forms to fill in and documents to check. Although a peer-to-peer lender will also want to carry out checks, the process is often quicker, which can help if you want to move quickly to make an acquisition or take advantage of a growth opportunity.

2. Lack of personal guarantees

In some cases, lenders will ask directors to come up with personal guarantees when borrowing money, meaning that your own assets are tied to the repayment of the loan.

Some peer-to-peer lenders, such as ArchOver, do not ask for personal guarantees, relying instead on the assets of the borrowing business as guarantees – for example the Accounts Receivable for the company.

3. Better fit with some types of company

Not every company has a plan that makes it easy to get a bank loan or equity investment. The repayment schedule may not work with your company’s cash flow and expansion plans, for example. In some cases a P2P lender can be more flexible.

4. Value

While bank loans can be competitively priced, few companies can access them. Many companies have access to invoice financing but this is expensive and difficult to manage. P2P is usually cost-effective, easy to manage and readily available. Of course, it pays to compare the two.

5. Maintaining control

Other ways to fund your business, such equity crowdfunding or venture capital, involve giving away a proportion of your business in return for the money. P2P borrowing allows you to maintain control of the company.

Telegraph Hub: How P2P is Bridging the Business-Loan Gap

Author

Angus Dent

Date

4th October 2016

As interest rates dive, new ways of raising returns on cash are sparking interest.

With the Bank Rate at a record low of 0.25 per cent and those with cash looking for reasonable returns, the peer-to-peer (P2P) lending sector is receiving a boost.

P2P lending sites offer businesses the chance to borrow money from individuals in order to expand, bypassing difficult-to-obtain high-street bank loans and replacing inflexible and sometimes pernicious invoice discounting facilities.

Some lenders receive returns in excess of 7 per cent on P2P lending sites, but risk losing their cash if the business goes under. This is the issue that Angus Dent, chief executive of P2P platform ArchOver, believes he has addressed with a unique form of security for lenders.

Mr Dent, a chartered accountant and technology business expert, founded ArchOver after realising there was a gap in the market for medium-sized loans for growing businesses.

“If you needed a £50,000 overdraft you could probably get it from your bank and, if you needed more than £3m, you could approach a venture capitalist,” he says. “But there wasn’t any reasonable way you could raise, say, £500,000 or so for your business.

“We also saw there were an awful lot of people who had money on deposit that wasn’t doing very much. ArchOver aims to put those people together in a way that is rewarding for everyone. The name refers to our platform, which arches over from the people with cash to those who want to borrow.”

Loans made through the ArchOver platform are “secured and insured”, which Mr Dent says provides “unparalleled investor protection”. The security policy involves insuring each borrower’s accounts receivables – the money owed by their customers for goods and services that have already been delivered – against the loan.

The main reason why company borrowers don’t repay loans is because their customers don’t pay them. Credit insurance successfully mitigates this risk. Given that most of the borrowers take credit insurance from Coface – an A- credit-rated supplier with a very good record of meeting claims, which represents a significant safeguard for lenders.

Different types of lending provide different types of security, and different types of security offer different levels of liquidity. By securing loans on Accounts Receivable he believes the security is relatively easy to value and liquidate, meaning that the likelihood of getting your money back in the event of a disaster is high. This compares well with property, which is often held up to provide great security, but which is difficult to value and often illiquid. That said, lending should only form part of a diversified portfolio of investments. “We believe people are grown-ups and should do their homework on their investments,” he adds.

The minimum that an ArchOver user can lend to any one borrower is £1,000, an amount that he believes means people will carry out the correct amount of research. “Most people will take an investment of £1,000 seriously,” he says, suggesting ArchOver is suitable for those with a portfolio of different investments, including those people who are managing their retirement income. “Our oldest lender is 89,” he confides.

Lenders are encouraged to find out more about the company that they will be lending to, including the reason for borrowing the cash.

Some of the businesses that have borrowed from ArchOver have included timber frame restoration specialist TRC, healthcare service provider Spirit Healthcare and accountancy business Spain Brothers. In each case, the company found ArchOver offered a better service, a combination of lower price, much lighter touch processing and no personal guarantees than they could get from a bank or invoice discounter.

So far ArchOver has facilitated £22m of loans with no defaults or losses, and Mr Dent believes the uncertainties created by the Brexit vote could further increase demand for the product. “While some businesses will decide not to expand, others will need to find growth finance and, with interest rates at 0.25 per cent, there is more demand than ever from those with cash who are looking for new ways to make their money work for them.”