Tag: p2p

TURNING TO YOUR PEERS

Author
Angus Dent
Date

Frustrated about the lack of finance available for their own businesses, Angus Dent and his colleagues created ArchOver, a peer-to-peer lending platform that helps innovative companies to borrow money at affordable rates.

IT’S a situation in which so many entrepreneurs will have found themselves – you’ve come up with a great idea to expand your business, offering a new product or service to your customers, or expanding into a fresh sector or location. All you need now is the money. And that’s where you hit a snag. While banks may be lending more cash than they were during the aftermath of the global financial crisis, that borrowing often comes at a high price, with unaffordable interest rates or unrealistic expectations about guarantees linked to the family home or other personal assets.

Step forward Angus Dent and his fellow founders at London-based ArchOver. While they were running their own businesses, they came up against that very same obstacle – so they decided to do something about it. They created ArchOver, a peer-to-peer (P2P) lending platform that allows firms that have been operating for more than two years to borrow money from lenders using its website. Companies borrow a minimum of £250,000, with interest rates starting at 7.7% a year. Since it launched in the autumn of 2014, ArchOver has helped its lenders to inject more than £65m into British businesses, bringing in more than £2.5m in interest at an average return of 7.3%. In an age when bank savings accounts are paying less than 0.5%, it’s easy to see the attraction for investors who understand the risks as well as the rewards.

“There’s no typical lender using our platform,” explains Dent. “We have a diverse group of individuals – the minimum amount that you can lend is £1,000 per project, so we have some people who simply have £1,000 to lend and then we have some other individuals who have each lent £2m in total.

“Between those two extremes, you have some people who put in £1,000 a month or £5,000 a month and some who put in £1,000 a quarter. What all of them have in common is that they’re investing on exactly the same basis – they all get the same information on the company and they all get exactly the same interest rate, which we believe is very important.

“As well as the individual lenders, we also have a small group of family offices, which tend to lend larger amounts to each project. We also have some funds that also use us to invest.

“Some larger small and medium-sized enterprises (SMEs) use us for treasury management. If they have spare cash on their balance sheet that they don’t need in their own business and want to earn a decent return on it then they can invest it with us.”

Dent and co-founders Brian Basham and Ian Anderson developed ArchOver during 2013 and then secured a £3m investment during the spring of 2014 from Hampden Group, which provides financial and business support services and manages insurance assets and underwriting capacity in excess of £2bn. As ArchOver’s parent company, Hampden has not only invested in the business itself but has also injected cash to the platform, putting its money where its mouth is and lending to other businesses.

The platform’s P2P lending has appealed to a wide variety of businesses. Autostop Leather – which has been making seat covers and floor mats for car companies such as Ford, Lexus and Toyota since 1991 – borrowed £300,000 via the platform to help it develop new products for its customers.

Ergowealth, which is based at Marlow in Buckinghamshire, was founded in 2013 by a group of financial planners. It borrowed £200,000 through ArchOver to fund the expansion of its mortgage advisory service by using its contracted revenues as security.

TLM Technologies – which offers electronic point-of-sale (EPOS), back office and head office systems – secured not one but two loans through ArchOver, injecting a combined £1.1m into the technology business. The first allowed it to replace its previous invoice finance facility with a 12-month, £600,000 loan secured against its accounts receivable, while the second 12-month loan for £500,000 was based on its contracted revenues from software licenses and service maintenance contracts.

“We started with what you might call ordinary manufacturing businesses, with factory units that produce a certain amount of goods each month,” Dent says. “We’ve then worked with a wider range of businesses, from suppliers to the construction industry through to professional services firms, such as accountants and lawyers.

“A little over a year ago, we realised that – if you look at the equity side of things – companies that have contracted, recurring revenues always attract a premium valuation because they’re predictable and stable. But there was no equivalent on the lending side of things – we thought that was a bit daft because you’re putting yourself in a position where you can’t lend to some of the most stable, cash-generative businesses.

“At the core of those businesses there is usually a very good idea, which you could say is intellectual property (IP). Those sorts of companies with strong IP tend to rent that IP in various forms, often as software or as services.

“So, we put together a service called ‘Secured & Assigned’, which takes that contracted, recurring revenue and wraps it up and almost makes it into an annuity type revenue and, in an intangible way, pops that revenue onto the balance sheet and allows us to lend against it. That extended our focus into another whole group of businesses, into software businesses, into serviced office businesses, into maintenance businesses, into wealth management firms.”

Between £10m and £12m of ArchOver’s lending in 2017 was based around that service, demonstrating the high demand for its financial products. Now, the platform’s latest step is allowing it to work even more closely with IP rich companies.

“Working in those areas led us down the road of looking at how we could help those companies fund their continuing investment in IP,” says Dent. “HM Revenue & Customs pays a research and development (R&D) tax credit, but it takes time even after the year-end to pull the numbers together, file the CT600 form to make the claim and then wait for the Revenue to cogitate.

“In the past few months, we’ve come up with a new service called ‘Research & Development Advance’, which – as the name implies – advances money against the R&D claim that’s due to the company. Two of the first companies to use it work in the security sector, with one developing facial recognition software and the other making body scanners for airports.”

Trust: The Currency of the Future

Author
Angus Dent
Date

Angus Dent, chief executive of ArchOver, explains how P2P and the banks can co-exist in fruitful competition underpinned by growing lender trust

Alternative finance may appear to be shaking things up for traditional lenders like the high street banks, but in fact it is injecting a greater sense of consumer trust in the financial industry as a whole. As P2P matures, it must carve out a space for itself that grows this trust while delivering attractive returns.

P2P doesn’t have the scale or the intention to pose a major risk to the big boys, but a shake-up of the ways people access finance can only be a good thing for an industry that has remained largely unchanged for the past 400 years. While radical change in too short a period leads to the type of risk that threatens us all, the P2P sector’s considered approach so far, and its core tenets of lender control and transparency, are inspiring trust in both lenders as well as borrowers. And trust, we all know, is fast becoming the currency of the future.

This is just the start for P2P. As it matures, it will be in a great position to work in tandem with the banks to expand their services.

Working alongside the banks

Until significant scale is achieved in P2P lending, with further products on offer for borrowers and a deeper sense of opportunity for lenders, the banking system is unlikely to invest seriously in the sector. In the US, which is a few years ahead of the UK in respect of funding, P2P has already begun to form a part of the smaller banks’ strategies – which suggests the course the UK market will take.

In this scenario, P2P will remain a bothersome, if small, source of competition rather than a partner asset. That competition will help keep the banks honest: that’s a large part of the true value of P2P.

With all this in mind, the question of whether banks and P2P platforms should collaborate or compete is an important one. For the time being, the fact that P2P and the banks do things very differently is leading to more value being created for both.

Taking P2P to the next level

One of the greatest strengths of P2P is that its business model is based on lenders’ own balance sheets and not that of the P2P company. It is therefore in P2P’s best interests to work at maintaining and growing trust among lenders and borrowers. Competition is always healthy but if it gets in the way of stability and thorough processes, both lenders and borrowers will be negatively impacted.

The biggest challenge faced by borrowers is one of trust – a large portion of the businesses ArchOver represents are owner-managed, with a direct relationship between the businesses performance and the financial wellbeing of its owners. For ArchOver to raise funds for that business takes time, effort, a thorough review of their track record and shared values in terms of trust and honesty.

In the long-run, taking the time out to focus on building trust will strengthen a business while also providing security to the lender – keeping P2P and the financial industry as a whole honest, trustworthy and therefore far more stable.

What Makes The Way ArchOver Lends Unique? – Could Peer-To-Peer Lending Take Your Business To The Next Level?

Author
Angus Dent
Date

With more businesses looking to finance the next chapter in their expansion and meeting dead ends, is it time to consider a different method. Whilst traditional lending can help, more and more business are using Peer-to-Peer lending to ensure that when they need to take the next step of their growth they can do so without the constraints that can come with conventional lending.

This month, Finance Monthly had the privilege of speaking with Angus Dent, CEO and Jerry Gilbert, Commercial Director at strongly growing peer-to-peer (P2P) business lending platform ArchOver. Founded by Angus, together with COO Ian Anderson, in 2014, to date the company has facilitated over £60million in total lending and is fully FCA-authorised. Angus is responsible for developing the overall policy and strategy of the business and ensuring its delivery by the management team. On a day-to-day basis, he is also engaged with borrowers, high-value lenders and strategic partners. Jerry joined ArchOver in September 2017, to provide strategy and structure around ArchOver’s growing commercial activities.

Here they tell us about the optimistic atmosphere surrounding the company at the moment and the significant appetite for the way ArchOver lends.

Typically, what do companies use the finance raised through ArchOver for?

Angus: Our borrowers use the finance raised through our platform for a wide variety of things – no two businesses are alike, after all. They might need a cash injection to fund a bigger office, or to service a major new contract they’ve just won. Or they might be looking to refinance after finding that their existing facility isn’t willing to grow and change with them – we can help them to pay off their existing commitments and secure additional finance to fund their next stage of growth. For some companies, it’s used as day-to-day working capital, freeing up other funds for growth activities.

Jerry: The key point is that SMEs can’t achieve their full potential without the right financing.

For many of the companies that make it out of the start-up phase, financing can be hard to come by.

Many waste months or even years chasing down a single angel investor or debating back and forth with the big banks. SMEs’ great strength lies in their agility, and they need agile funding to match that. The P2P model makes the funding process shorter and simpler, and helps companies get on with the business of growing.

What are the risks of peer-to-peer lending?

Angus: It’s probably best to think about it in terms of the security provided rather than the risks involved. When you’re selecting a peer-to-peer investment or loan to make, you’d naturally want to know about that security that’s provided with it. At ArchOver, when we consider levels of security, we typically look at trade debtors and contracted recurring revenue, both of which are assets that offer good security, since both of them provide cash from which a loan can be repaid. In my opinion, when evaluating security, people would want to look at an asset that is designed to turn into cash – because this means that there’s a flow of cash, which will guarantee the repayment of their loan.

An asset such as property in contrast, is a very liquid asset and would not be as secure, since it could take years to sell a property and there’s not necessarily any cash that flows from it. It’s vital to evaluate how security fits with your objectives and with what you find acceptable.

Jerry: It’s also worth mentioning that ArchOver is quite unusual in looking at those two parts of the business. Many of our competitors in the peer-to-peer space and the traditional lending space will achieve their security from a personal guarantee which is in most instances attached to the company director’s property and has all sorts of connotations.

Angus: This should then make you question whether it provides any security at all – you’re lending to the business. Either the business can afford and service the loan or it can’t. What value does bringing additional assets into play have?

How do you evaluate the ability of a business to fulfil its repayment commitments?

Jerry: Evaluating a business’ ability to fulfil its repayment commitments is not a simple, one-off job. Here at ArchOver, the process covers the entire lifecycle of the borrower, from the moment they are in touch with our Commercial team, to when the loan is fully repaid.

Every prospective borrower must pass through our extensive Credit Analysis before their loan is made available to lenders on the ArchOver platform. The Credit team invests a considerable amount of time – on average four days – to fully review the potential borrower. Should the borrower be approved by the Team, the Credit Committee will review, and make the final decision. Once the loan has funded on the ArchOver platform, we monitor monthly both the asset value and the management accounts against forecast throughout the loan term. We also perform multiple on-site visits before and throughout the loan term. This allows us to get to know the business intimately – its challenges, its strengths and its weaknesses. We can continuously assess the borrower’s position, so we can identify and handle any new risks as (or preferably before) they arise within the borrower’s business. We believe we are the only P2P lender to conduct this kind of monthly monitoring.

Angus: We employ a traditional ‘Five C’ approach: Character, Capital, Capacity, Conditions and Collateral. Understanding a business is a complex, multi-dimensional challenge and we employ both quantitative and qualitative elements when reaching judgments. We have a detailed process we follow to deliver a number of key metrics so that our Credit Committee can take an authoritative decision on which companies should make it onto the platform.

Angus, how was the idea about ArchOver born?

Angus: Through our own experiences as entrepreneurs and directors, we realised how difficult it was to raise working capital in the range of £100,000 to £5 million. We also saw that those with cash were earning next to nothing in interest and that, for those potential investors, security was imperative. Our first thoughts of how to overcome these issues became the founding principles of ArchOver, and so we set out to support UK businesses and UK investors alike in a fair and innovative way.

What makes you different to other P2P lenders?

Jerry: In short, what makes us different is our human-touch. There is always someone available for you to speak to. Whether you are a borrower or a lender, we want to listen and engage with you so we can be as helpful as possible. Providing a personal service is at the heart of what we do.

More specifically, on the borrower side, we seek to facilitate lending in a way that is business-driven, business-focused and business-friendly.

Our loans are fixed amount, meaning there is no unpredictable facility fluctuation, and they are fixed-term and fixed-rate, allowing the borrower to plan ahead. Many of our borrowers have sought an ArchOver loan to help them exit an expensive and time-consuming invoice discounting facility, because we appreciate that a loan should be there to support a business, not to sap its resources. Similarly, we do not take personal guarantees, allowing directors to keep their business separate from their personal life.

Angus: On the lender side, we prioritise security without compromising interest rates. Our Credit Analysis is one of the most thorough in the sector, and we are the only platform to monthly monitor the business and security throughout the loan term. With the exception of our Research

Development Advance lending service, our loans are secured with an all-asset charge over a borrower’s business, and all borrower revenues flow through controlled bank accounts owned by ArchOver. To further underpin security, our lending models leverage the value of the borrowing business’ assets. Our flagship ‘Secured & Insured’ model leverages finance against the company’s Accounts Receivable, where those Accounts Receivable are insured against late or non-payment. Our ‘Secured & Assigned’ model is secured against contracted recurring revenues, where those contracts are assigned to ArchOver.
In a time when interest rates are skimming along the bottom of the graph, we know how important it is to make your money work for you. ArchOver lenders can receive between 6 – 9%p.a., and on average earn a return of 7.3% p.a.

What are the company’s mission and values?

Jerry: Put simply, ArchOver exists to help businesses access the funding they need to grow, and to help investors make a secure, worthwhile return on their money.

We are committed to treating UK businesses and investors fairly. If a business has the assets to sustain borrowing, we want to give them the chance to get up and running quickly. We also believe that investors should be able to secure favourable returns without having to take on unnecessary risk.

We believe in transparency throughout the entire process. Our borrowers are never left in the dark (which is sadly a common occurrence with the banks) and our lenders have access to information sufficient to allow them to make an informed decision on which loans they want to invest in.

Last and most certainly not least, we are helpful, focused and flexible. We are here to help you achieve your business or investment goals.

Have your values changed over the past 4 years?

Angus: No. What has changed is the way in which we do things, not our ethos. We expanded our offering to lenders and borrowers by introducing our ‘Secured & Assigned’ model in January 2017, and have also introduced our ‘Bespoke’ model.

This means we can offer our funding solutions to a greater range of UK businesses, while maintaining security for lenders. For lenders, we are looking to introduce an IFISA early this year, alongside some other services. Watch this space!

Making the most of your money

Author
Angus Dent
Date

Angus Dent, chief executive of peer-to-peer business lender ArchOver, explains how P2P is attracting the next generation of investors and savers

As inflation grows ahead of expectations, far too many savers are seeing the value of their hard-earned cash decline.

Recent research from the Financial Conduct Authority (FCA) found that just under a third (30 per cent) of UK adults would not be able to cope if their mortgage repayments increased by £50 a month. With the recent 0.25 per cent rate rise, it won’t be long before these households feel the squeeze. To add insult to injury, the rate rise is not being passed on to savers, and the chances of interest rates catching up with inflation any time soon are extremely slim.

There’s no room to breathe in the current system. UK households can’t build a proper financial buffer with their low interest rates, and it’s even harder to achieve a decent return on investment.

ArchOver’s ‘Next Gen: Investors and Savers’ report, which explores the investing and saving behaviour of UK adults, illustrates that the response to these challenges has been mixed to say the least.

We’re told that millennials are stuck in a financial rut, trapped by high property prices and low wage growth. In reality, however, it appears that a larger proportion of millennials are putting their money to work than older generations, getting higher returns on their investments and being bolder with their portfolio options. The rise of a subscription-service mentality means the ‘digital native’ generation is pushing the boundaries, more willing to make short-term, high-yield investments.

Caution and safety

Despite this growing willingness to consider new investment options, the overwhelming reaction to change across all generations thus far has been to bury our heads (and money) in the sand and hope for a sunnier day.

In total, two-thirds (67 per cent) of UK adults see themselves as savers. This is a group that is using savings accounts and pension funds to sit on their cash. It’s human nature to be careful in a crisis and they like the security these options provide. Well over half of savers associate the word ‘savings’ with ‘security’. The danger for these savers, though, is that they risk seeing their nest egg dwindle away over time as inflation and low interest rates eat away at their money. They are being led down the primrose path by deceptively ‘safe’ banking options.

On the other hand, the remaining third (33 per cent) of UK adults see themselves as investors, using riskier avenues like stocks, shares and property to grow their investments. They’re bolder than their counterparts, but still more than half associate the increased risk with uncertainty and caution.

As a result, the majority will only put their cash in traditional investments that they’ve used before, or that a friend would recommend to them. The legacy of economic instability from the global financial crisis in 2008, alongside political uncertainty in the form of Brexit and Trump, is making investors wary. Until they can get greater clarity, even the UK’s most adventurous investors are playing it cool.

Diversifying your portfolio

Both of these camps could make a change. There are other ways to balance security and risk in order to maximise returns without putting their capital in too much danger. In a challenging economic environment, savers and investors need to broaden their options and embrace alternative forms of finance.

At the same time, the peer-to-peer lending sector has been steadily maturing over the last five years. P2P is leading the charge in alternative financing options for UK adults stuck in a financial rut. Rather than committing their money to the banks and hoping for the best, P2P lets people put their money into investment options they believe in and can trust to grow, helping them to boost their returns at an acceptable level of risk.

As investors and savers look to break out of the cycle of low returns, P2P is set to be a key part of the next generation of investment in the UK.

The rise of P2P

For example, UK savers and investors are showing a willingness to embrace P2P lending. When thinking about their money, six in 10 (64 per cent) respondents would be willing to lend to family or friends if they gave their word they’d pay the money back. This rises to 68 per cent for savers and sinks to 54 per cent for investors.

UK savers and investors are also willing to back British businesses. Six in 10 (63 per cent) would be willing to lend to a business. Over a quarter (26 per cent) would lend to a business that could use their assets as security. A quarter (25 per cent) would lend to an established business that has been operating for a few years and 11 per cent would lend to a start-up business.

However, while the number of investors willing to lend to a business rises to 90 per cent, the number of savers is just 50 per cent. When it comes to P2P, investors are leading the way. Over half (54 per cent) claimed they would put money into the new Innovative Finance ISA (IFISA) if they had the disposable income available, since it offers a higher return on their savings (63 per cent), higher levels of interest payments per year (42 per cent) and because they have more confidence in the P2P sector now certain platforms have been approved by the FCA (31 per cent).

Understanding a new sector

Yet more than a third of investors (39 per cent) are still nervous about the risk of losing their money. Over a third (37 per cent) are still concerned that they don’t fully understand the sector and just under a third (31 per cent) still don’t see P2P as a fully regulated sector.

Ultimately, P2P is still likely to attract those with less need for security, as continued uncertainty around the maturity of the sector has yet to wash away. In contrast to investors, just over a third (36 per cent) of UK savers would put their savings into an IFISA if they had the disposable income available. This is despite 61 per cent of savers recognising that they would achieve a higher return on their money and 42 per cent acknowledging that it would offer higher levels of interest payments per year.

However, the majority (57 per cent) are held back by the fact they still don’t understand the IFISA and 48 per cent are nervous about the risk of losing their money. Further education and assurance is needed to shake UK savers from their stasis and encourage them to embrace new saving vehicles.

P2P lending may have been seen as an uncertain option for a decade. Now, as investors continue to experience rock-bottom interest rates, and City watchdogs approve new forms of alternative finance, P2P is coming of age as an alternative asset class. Institutional investors are now being attracted to the sector, with high-profile fund managers like Neil Woodford and Artemis investing in RateSetter. However, this is only the beginning. No wonder it is one of the fastest growing markets in the UK.

P2P and the future of investing

As the country continues to recover from the aftershocks of 2008, people’s propensity for risk doesn’t have to change, but the contents of their portfolios should. The financial crisis has sparked a decade of change and we’ll see high-return, high-security P2P options leading the way to higher returns as part of a diverse portfolio.

P2P has already benefitted many areas. It has advanced day-to-day business lending, provided new routes to finance, and supported innovation among British businesses. The list goes on. But the full extent of its potential for savers and investors has not been realised. Not quite yet.

For many, P2P is still seen as a new concept and there has been a desire to cling onto traditional relationships with bank managers, but times are changing. P2P lenders are now established businesses, many of them operating for at least eight or nine years. With new P2P business models in place, savers and investors can have confidence in the security of their funds at a time when rates of interest remain extremely low.

What’s more, despite our research pointing to a millennial boom in alternative investing, Gen X is the most strongly represented group on the ArchOver platform. There may be a gap between what people say they do with their money and what they actually do – but what we can say for certain is that P2P is not constrained to one generation. Millennials and Gen X are both showing interest in the benefits it can bring and are starting to broaden their portfolios.

Our research shows how the UK population is behaving now, but it also points the way forward. The good news is the need for security naturally decreases when individuals and businesses recognise that they are not operating in their normal climate. It is time to educate investors and savers on how new investment options could help them make the most of their money.

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About the research

ArchOver commissioned independent research firm, 3Gem, to survey 2,000 UK adults about their attitudes towards risk and investment in the current climate. The research explored whether economic uncertainty, political decisions, interest rates, inflation changes and housing market conditions are driving a new appetite for investment. It also considered the various behaviours and attitudes of investors and savers towards the alternative finance market.