In this post we’ll take a closer look at how rebuildingsociety.com monitors the platform's loan book.
For an SME, change is inevitable. Whether it's changes to key personnel, the business model, trading location, services, or products, much is likely to change during the years a company has a loan. Making the right changes at the right time can often be the difference between survival or failure for many small companies.
For this reason, our Operations and Recoveries Team continually monitors the health of businesses which have a loan to repay. Effective portfolio management is crucial in maintaining a healthy net return for our lenders and reducing the risk of bad debt loss.
Completion is just the beginning
When a loan auction is fully funded and the loan advance is sent to the borrower, this marks the start of the process for our ops and recoveries staff. One important part of the completion process involves adding the name of the new borrower, new guarantors, contact details and other relevant information (like trading / brand name) to our ongoing monitoring list so that we can learn about any change in their circumstances as quickly as possible.
We will usually be notified of changes in one of several ways:
- Company Credit Monitoring – we use a couple of different credit checking services, and these services notify us if there’s a significant change with a business borrower. Such changes can include a change in directors, Companies House filings, a significant drop in their credit rating, information about payment terms or assets.
- Individual Monitoring – along with the company checks, we also monitor publicly available information pertaining to our businesses and loan guarantors. If there is an adverse media story about a guarantor or their business, or their name comes up on databases such as the insolvency register, Companies House disqualifications or law enforcement records, we’ll be notified.
- Communication with the Borrower – the most old-fashioned way is obviously for the borrower to notify us directly themselves. We’re always at the end of the phone if our borrowers need to talk to us, and we encourage borrowers to check in with us at regularly to provide an update on their business. This has become increasingly essential during the current pandemic, as we’ll discuss later. We take two points of contact from each borrower and work with an external credit control company to assist with quickly getting in touch with borrowers when necessary.
Our response to COVID-19
With the economic impact of the current pandemic only beginning to be felt, there has never been a more critical time for platforms to keep up their loan book monitoring than 2020. Our team has been working hard in this regard to try and minimise the fallout from the pandemic in terms of a drop in net returns and defaults.
We have reached out to all of our current borrowers to see if they need any assistance. We have managed to speak with all but 6 of our current borrowers by telephone, and all borrowers have been sent a COVID-19 Impact Form to complete so that we can log the current risk to their business. Almost half of respondents have confirmed that they do not need any additional assistance, and we have been working with the borrowers who have asked for additional support to provide it - whether that be in the form of an interest-only period, a repayment holiday, a capital overpayment, practical assistance or advice.
By staying in close communication with our borrowers, we have been able to deal with each request on a case by case basis rather than implementing a uniform measure which may not be suitable for all, or which may represent an unreasonable impact for lenders (such as a blanket repayment holiday). We have worked with a number of borrowers with cashflow problems, and have been able to provide assistance, all the while reminding borrowers that they aren’t interacting with a faceless creditor, as many of the community of lenders who invested in their company will have also been negatively impacted by the crisis and are now more reliant on their investment in their business than ever. This approach has allowed us to maintain a repayment record, default rate and average return rate largely in line with the prior year norm despite the new challenges that COVID-19 has brought.
Although the full economic impact has certainly not been felt yet, we will continue to stay in close communication with our borrowers and do our utmost to assist companies whilst maintaining lender returns.
Looking ahead
Our community is stronger as a group; engagement and interaction between lenders and borrowers, even after a loan has been funded, helps the community to grow. Particularly in these turbulent times, we encourage lenders to support the businesses they have invested in by buying from them, or by recommending them to a friend. As a lender, your support can help a small business continue to thrive.
