Seven weeks into lockdown, it’s no secret that the economic impact of the novel coronavirus is widespread, affecting employment, businesses and investments. The P2P lending industry is no exception. Here we explore the actions taken by rebuildingsociety and others in the industry.
The impact on P2P platforms across the UK has varied and so has the way in which many platforms have responded. The differences in responses and actions taken by platforms has largely been driven by the variances in the platform business models and investment strategies built into platforms. Whilst born from the 2008-2009 financial crisis, this is the first true economic downturn and turbulence faced by the industry.
How have platforms reacted?
Some platforms have taken drastic action by suspending all lending as well as lender withdrawals. Others have chopped the interest rates to lenders by as much as half and some have needed to implement new lender account management fees to support the continued operation of the platform.
Some of these actions have cast a high level of uncertainty and concern over the future of these individual platforms, and even over the industry as a whole. When making a decision on whether to invest via P2P platforms at the current time, investors should consider each platform on their merits and recognises the intrinsic differences of their business and investment models.
Your Investments on rebuildingsociety.
As a platform we’ve been reacting to the potential impact to our loan book since early March, weeks before any talk of a total lockdown.
We’ve been doing this by engaging with all of our borrowers individually and seeing what assistance is needed for their business, with the underlying objective being to maintain monthly repayments and where this isn't possible, to get them to cover the interest, which has helped to minimise any potential damage to lender returns.
Our team continues to operate at full capacity, with no staff members furloughed to date.
Existing Loans
Whilst this is undoubtedly a very stressful and in many cases a busy period for our borrowers, we’re pleased that over half our existing businesses have responded in full to our requests for information in regard to the impact of the virus on their businesses. From these, we’ve only needed to grant 4 repayment holidays, all currently limited to one month, and only 7 interest only periods of a maximum of 3 months.
As a platform we believe that having the ability to respond to each of the borrowers on an individual basis, is the best way to help protect your investments, and has allowed us to avoid more drastic courses of action taken by other platforms. This has allowed lenders to continue to access their funds via the secondary market and to continue to receive capital and interest repayments where they are made by the borrowers.
In addition, we’ve been actively helping current borrowers to access government initiatives such as the CIBLS and furlough schemes. Whilst there has undoubtedly been frustration at the obstacles that were put in place by the banks offering CBILS loans, the introduction of Bounce Back Loans has allowed many of our borrowers to access the working capital they need to weather the crisis and maintain payment obligations.
Aware of the risk that many businesses might during this time, over gear their business, our credit risk assessment process and recovery forbearance processes have been amended to take into account whether businesses have successfully accessed or plan to access these schemes.
New Loans
Whilst some platforms have taken the decision to completely suspend all new lending, we feel that it is important that where possible, we continue to support strong businesses that need the support at this time, as well as those businesses that are either unaffected or even thriving as a result of the impact.
That being said, we’ve significantly amended our credit risk process to factor in the new risks during this time, and every business is also assessed on its ability to weather the impact of the virus. Details of this impact assessment can be found on all new loans listed, allowing you to make your own decision in regard to lending.
Since January this year, we’ve only approved 11% of the applications received, with 89% of applications being rejected during our assessment process.
Benefits of investing through rebuildingsociety
As a platform we’ve always sought to take a cautious and risk adjusted attitude to lending and management of the platform. Over the years we’ve had various pressures to relax lending rules and amend the way in which lenders invest via the platform, but have often decided against following the trends of other platforms where we believe it would not serve in the interest of our investors.
Security
Unlike many P2P lending platforms, all our loans carry some level of security, meaning that in a worse-case scenario, we still have some routes to recover your funds. Not only do all our loans carry security of at least a director’s personal guarantee, where a borrower is only able to provide a personal guarantee, we’ve always limited the net funds amount they are able to borrow to £50,000, limiting your exposure and risk. In contrast, some platforms have facilitated unsecured business borrowing of hundreds of thousands of pounds, on the back of personal guarantees alone.
Furthermore, our commitment to ensuring loans carry security, as well as our commitment to the debt recovery process, saw us achieve a 400% increase in debt recovery in 2019.
Interest Rates
Unlike almost all other platforms in the UK, lenders are still able to pick and choose where they want to invest and can choose to invest at rates of up to 20% on many loans. Not always a popular decision with borrowers and brokers, as this is significantly higher than on any other platform.
However, we’ve sought to maintain the option for lenders to lend at these high levels of interest on loans, as our modelling has suggested that this is the appropriate risk adjusted rate for lending to SMEs. Building a margin to allow for a level of losses by lenders, whilst in the majority of cases still allowing lenders to achieve strong positive net returns over the long term.
BuyBack Guarantee
Over the years we’ve been encouraged by lenders to introduce a provision fund, as introduced by many other platforms.
In June 2019 we chose instead to launch our unique BuyBack Guarantee. As we believed that this product would in the long-term provide better protection and support to our most risk sensitive lenders in comparison to a provision fund
10 Reasons Why a Buyback Guarantee is Better than a Provision Fund
The BuyBack Guarantee (available on existing loans on the secondary market) is proving very popular at the moment, as lenders that wish to continue seeing a return on their invested funds are exploring routes to reduce their risk. In comparison, one of the actions taken by other platforms has been to temporarily restrict or stop pay-outs and claims from their provision funds.
Automatically facilitated by the platform and backed by lenders with funds on the platform, either in available cash or current active investments, loans with a Buyback Guarantee are bought back by these lenders when the loan falls into arrears or default. Allowing the lender that purchased the guarantee, to receive their capital back without the future risk of default or a possibly lengthy recovery process.
Visit the Secondary Market to purchase loans with a BuyBack Guarantee.
At a time when many investors are feeling the turmoil and decline from other investments in stocks, shares and property, we believe that where lenders are still able to apportion funds to investments and create a passive income, they can still enjoy healthy returns from P2P, despite the current crisis. Being aware of the risks and benefits of various P2P platforms, has never been more important. The final decision on whether to invest at the moment is, of course, a personal one and will depend on a number of factors currently impacting you, but we believe that rebuildingsociety.com provides lenders with the flexibility and transparency to come out on top of the crisis.
Remember - Pessimists see difficulty in every opportunity; optimists see opportunity in every difficulty
