Tag: lending

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

Author
Angus Dent
Date

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.

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.

business-finance

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.”

Time to Break the Invoice Financing Habit

Author
Angus Dent
Date

Many SMEs automatically cover the gap between production and payment by using invoice financiers (IFs), which claim to advance between 80% and 100% of the value of each invoice raised, but on average advance only about 63%. This has been fuelled by the reluctance of the traditional banks to lend to SMEs, but virtually all businesses would be better off using one of the other forms of finance available.

IFs usually require personal guarantees and involve huge amounts of internal administration and complicated fee structures, plus the amount of available finance is unpredictable. When business is strong, a company will have lots of money sitting in its current accounts and when business is slow, and the company really needs it, the finance is not there.

Established businesses with strong order books are better off opting for reasonably priced fixed term loans, which are easier to obtain than many believe.

business-loan

For example, ArchOver offers a fixed term loan for up to two years, which can be rolled over for a further period if desired. This means the business always knows how much is in the bank and the same finance is available in slow times as in good.

These are secured against the insured long-term value of the debtor book and, as long as the value of accounts receivable stays above a certain level, the finance will remain the same. The loans are remarkably straightforward to arrange and no personal guarantees are required.

It is often said that IFs are good for start-up companies with no trading history or stable debtor book, and the amount of finance available grows as the company grows. Nonsense, these enterprises really need equity finance as growth in start-ups is never in a straight line and the problems of good and bad periods are even greater.

It is essential to look beyond IFs in all situations

To learn more about how ArchOver can help with your business needs, contact a member of the team today at 0203 021 8100.

Falling Further Down the Rabbit Hole

Author
Angus Dent
Date

The rate at which the Bank of England is prepared to lend short-term money to financial institutions looks set to fall below its current historic low of 0.5 per cent to 0.25 per cent, a move designed to stimulate the stuttering British economy. However, I would argue that further suppressing the cost of credit will do little to help British businesses battling Brexit uncertainty. Instead this rather negligible Interest Rate reduction will inflate the debt bubble while further punishing pensioners and savers, thereby diminishing waning economic confidence; thus costing companies dear. So what is the MPC’s rationale?

interest rates

In Money Creation in The Modern Economy – a paper published by the Bank of England in 2014 – Michael McLeay, Amar Radia and Ryland Thomas explain how commercial banks create money via the provision of loans to households and companies. Contrary to economic theory outlined in most textbooks, ‘rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits’ (McLeay et al., p.1, 2014). It is thus the commercial banks (not the Bank of England) who create money. The interest rate – otherwise known as the ‘repo rate’ – acts as the ultimate constraint to commercial bank’s ability to create money as it determines the price and consequently the profitability of lending. By lowering interest rates, the MPC are reducing the price of credit and thus imploring commercial banks to conjure up more money by writing new loans.

The MPC hope that more ‘fountain pen money’ – money created at the stroke of bankers’ pens – might help to sand over the cracks our decision to leave the EU has created. It will not. Rather, it is a vote of no confidence in the UK economy, an economy currently plagued by uncertainty. What’s more, it proves we have learnt little from the 2008 financial crisis. As Mervyn King (2010) suggests, ‘for all the clever innovation in the financial system, its Achilles heel was, and remains, simply the extraordinary – indeed absurd – levels of leverage represented by a heavy reliance on short-term debt.’ Would raising interest rates be such a bad idea?

ArchOver breaks through the £20m loans barrier – with no defaults or losses.

Author
Alex Taylor
Date

News that ArchOver has succeeded in passing the landmark figure of £20m in business loans in less than two years has confirmed its reputation as one of the UK’s fastest growing crowdlending platforms.

Commenting on the achievement, CEO Angus Dent said: “Naturally we are pleased at reaching £20m because it confirms that our unique ‘Secured and Insured’ business model can withstand the challenges of the market place in even the most difficult times. SME borrowers have been understandably cautious because of the uncertainty created by the Brexit vote, but confidence is slowly returning and our loyal core lenders have been willing to step up to the plate to meet demand.”

“This is the best way to answer critics of the alternative finance sector, particularly since our business model prevents us from lowering lending criteria even if we were tempted to go down that path. Good quality borrowers will always be able to find the finance they require if they know where to look and lenders, faced with the prospect of even lower returns from traditional deposits, will be even keener to secure decent returns on their money in return for an acceptable level of risk. The market is working, despite the criticism and best efforts of the detractors to knock it off course.”

 ArchOver trophy