Investors

on the rebuildingsociety.com blog

31st May, 2017

Make P2P Lending Work For You

Whether you are new to peer-to-business lending or are a seasoned professional, you should regularly consider whether your lending strategy is working for you. We’ve put together a short list of things you should consider as a peer to business lender not only on rebuidlingsociety.com, but across other platforms too?

1. Why are you lending and when do you lend?

Understanding and recognising your reasons for lending via P2B platforms will allow you to make more informed lending decisions. For example, are you lending to make a quick return on your funds and are likely to need the money at short notice, if so, then lending to a business on a 5 year term might not be the best means to meeting these objectives.

Similarly understanding more about what makes you invest in one loan over another is also another important factor to take into account, particularly when reviewing loans that may have gone into default. By setting a good list of factors that feel should be met before you lend to a business, the more informed your lending decisions will be and the more closely aligned to your risk appetite.

We asked our lenders why they tend to invest, 38% say that they invest to build their net worth, another 37% say that they invest to earn a passive income.

Why lenders lend

From the below graph one can see that many investors rank security, Profits, Answers to questions and high returns as the most influential factors when deciding when to invest. Whilst a many of these are valid reasons for investing you should always ensure that a loan meets your minimum requirements.

Lending Influences

Strong Security. Whilst strong security makes a difference in the recoverability of a loan should it enter default, it will not necessarily mean the business is a good investment. Lenders should also keep in mind that the value of the security may both increase as well as possibly decrease depending on the circumstances.

Good Answers to tough questions. The ability to ask questions and receive answers from borrowers is one of the things that sets rebuildingsociety.com apart from many other platforms, the discussion forum can prove to be a really useful tool not only to lenders but also to borrowers.

Profits. Profits are often a good measure of the strength of a business, however investors should always take into account that the financials provided by the borrowers are often from periods gone by and not evidence of the business’s current financial position.

High returns. It may be natural for lenders to chase high returns, particularly where lenders feel that a loan represents an above average level of risk. However, lenders should keep in mind that charging borrowers higher levels of interest could put the borrowers under added financial pressure.

2. How diverse is your lending portfolio?

Lending across a variety of different loans means you’ll spread your risk.

Lending to a single sector, risk grade or even business will mean that if there is a decline in that sector your returns could be greatly affected.

You should regularly review your loan portfolio to check whether you are comfortable with the diversification of your portfolio, if you find that you are not comfortable with the spread you should consider taking action to divest from certain sectors or invest across varying sectors in future investments.

As a P2B lender you will generally be lending to small and medium size businesses, these businesses are often easily affected by changes in the economy, regulation or by personal circumstance, therefore it may be in your interest to ensure that you don’t get caught up in a wave of turbulence in any industry sector.

3. Are you Active or Passive?

We have noticed that lenders on our platforms and others tend to be either ‘Passive’ or ‘Active’. By this we mean that some lenders will take little interest in their lending behaviour and their loan portfolio, preferring simply to lend widely and achieve a potentially lower return for little effort, whereas other lenders prefer to actively pick and choose their loans and will actively monitor the performance of their loan book.

Whilst rebuildingsociety.com, like many other platforms allows you to activate an auto invest function, it is important that you do, at least periodically check in on your portfolio to monitor its performance. Checking in to see how loans are performing may allow you to spot signs that you are uncomfortable with allowing you to divest early.

Similarly taking a more active approach to lending on the primary market place, by asking questions of the borrowers and scrutinising their accounts you may be able to better identify businesses that suite your risk appetite. Furthermore, on rebuildingsociety.com lenders can also actively make decisions on the recovery process when polls are put to lenders on a loan in recovery.

Our underwriting team aim to provide lenders with as much information as possible to inform their lending decisions. We often post disclosures on the loan profiles about important information that we believe you should be aware of that you may otherwise miss. We also notify the borrowers that they must answer questions from lenders if they wish to raise the finance.

We asked our lenders whether they tend to be more passive than active, here’s what we found.

Lending Styles

4. Primary Market or Secondary Market?

On rebuildingsociety.com and on many other platforms lenders are able to invest either via the primary market into new loans or via the secondary market, into existing loans with repayment history. So, which one should you use?

Both marketplaces have their advantages and sometimes disadvantages, your decision about which one or what combination of the two should use, will come down to your investment strategy and possibly experience as an investor.

The primary market allows investors to dictate the interest rate of the loan and provides lenders with the opportunity of asking the borrowers questions before investing anything. Via the primary marketplace you can support borrowers from the start and help them raise the finance quickly, you can also choose to sell your micro loans at a later stage and possibly benefit from a sale at a premium.

The secondary market allows investors to pick from a larger variety of businesses all of which will have some level of repayment history on the platform. This allows investors to make a decision based on the payment performance of the borrower on the platform. This being said, lenders should be aware that not all loans on the secondary market will have perfect repayment histories and as such may not be a suitable choice for them depending on their investment strategy. It is very important that if you do choose to buy form the secondary market that you go through all of the information available on a loan before purchasing a micro loan. Other lenders may seek to sell micro loans at a discount, this often happens when a loan may not be performing according to its schedule. If you choose to buy a loan that is not performing well you could benefit from the discount should the borrower ultimately repay, however you may also lose your capital.


27th Feb, 2017

Full FCA Authorisation

rebuildingsociety.com has been awarded full authorisation from the Financial Conduct Authority in recognition of our compliance with sector-specific regulations.

We are very excited to share news of this major achievement and important milestone with our community. Authorisation means that we meet the rigorous standards set by the FCA and that we can soon start to offer the Innovative Finance ISA.

Although we have been operating under FCA rules on Interim Permission since April 2014, being granted full authorisation helps us to continue building on the important relationships of trust we have with all our clients. We are proud to have achieved this milestone ahead of many other platforms, which we believe is testament to our small but dynamic team, systems, processes and controls.

(more…)


12th Jan, 2017

FinTech North 2017

Following the success of the inaugural event in 2016, FinTech North 2017 is once again set to take place during Leeds Digital Festival week and aims to attract 350 delegates and support from the FinTech community in the Leeds City Region, across the UK, and internationally.

FinTech North 2017 will be hosted on the 26th April 2017 at aql in Leeds. The goal of the event is to generate collaboration and knowledge share within the financial services and technology community and to generate tangible economic benefits for the region.

The agenda for the one day conference will feature a number of well-known keynote speakers who will cover topics including innovation, alternative finance, big data and analytics, machine learning, digital identity and authentication.

View the 2016 FinTech North video:

 

In recent months the interest and activity in the FinTech arena in Leeds has heightened, with developments including the publication of a FinExtra report into FinTech in the Leeds City Region and the announcement of a new Digital Laboratory which is being led by Finexus and has gained high profile corporate support.

Julian Wells, Director of Whitecap Consulting, says: “There is a strong desire by numerous stakeholders in the Leeds City Region to increase the profile, capability and economic value of FinTech in the region. This year by launching FinTech North we laid the foundations which will enable us to deliver an even more impactful event in 2017 and help put FinTech firmly at the heart of the northern digital economy – particularly the Leeds City Region – making it attractive to UK and international organisations.”

Dr Chris Sier, Director of FiNexus and FinTech Envoy for the Northern Powerhouse, who spoke at FinTech North and will chair the 2017 event, says: “Opportunity was a theme from every speaker at FinTech North 2016. The challenge for Leeds is to work together to ensure our City has the best chance of exploiting the opportunity to become a true FinTech centre of excellence.”

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Nearly 200 business leaders attended the first FinTech North conference in Leeds, and speakers and delegates were drawn from places as diverse as Estonia, Germany, London and Manchester.

Dan Rajkumar, Managing Director of rebuildingsociety.com and White Label Crowdfunding, summed up why the next FinTech North event will be a great opportunity for the region: “There is no doubt Leeds is now seen as a key FinTech and digital leader outside London both for infrastructure and talent. FinTech North 2017 will provide the delegates with a fascinating day of insight and the opportunity to network with industry peers and some of the region’s best known FinTech companies and governmental bodies.”

Registration for FinTech North 2017 is now open – click here to book your free place.

For speaking and sponsorship opportunities, please contact Whitecap Consulting.


14th Nov, 2016

Introduce us and be Rewarded!

Our lender base is made up of a wide variety of savvy and well connected individuals, many of which are greatly involved with local entrepreneurs and businesses. Growing businesses need access to capital and we’re here to help.

We’d like to reward our members for referring businesses who are looking for additional finance.


If you refer a business to us that successfully raises finance through rebuildingsociety.com, we’ll reward you with a referral fee of 1% of the amount raised. All you have to do is send them our way and ask them to mention you at the point of application or first contact.

We’re looking for businesses that you love and support, that:

  • Have been trading for at least 2 years as a Ltd company or LLP; and
  • Have an average turnover of £50,000 a quarter

To find out more about our lending criteria, please visit How to Borrow

To refer businesses applicants to us, send them the link http://reb.so/apply.

Terms of Referral

* The loan must be fully funded by 31st Dec 2016
* You should not be a shareholder or director of the referred applicant
* You may not act as a broker on behalf of the applicant
* You must be registered lender of rebuildingsociety.com


11th Nov, 2016

The Return of an International Sweet Treat

In 2014, Candy Hero Ltd. came to rebuildingsociety.com looking for an influx of funds in order to expand. They planned to use the investment to boost wholesale sales, strengthen equity and then open a new UK store in time to maximise Christmas time sales.

Candy Hero Ltd. was founded in December 2008, by two entrepreneurial siblings with a mission to bring unique, specialist and delicious sweets from all over the world to sweet-toothed customers in the UK and Europe.

The online shop was launched in 2009, to be followed later by high street shops in York and Leeds. Visit one of their shops, and prepare to be tempted by Birthday Cake Golden Oreos, exploding cinnamon candy, Nerds, giant lollipops, wasabi candy and boxes of Jelly Belly Buttered Popcorn Jelly Beans, to name just a few from the vast collection. The 10,000 square foot warehouse in Bradford sees around 4,000 unique product lines carefully handled by employees individually chosen to fit the company’s high energy, innovative ethos.


The sweet importers and retailers’ first loan application was a great success; brothers and co-owners Frank and Leo managed to raise the target £50,000 from investors. Candy Hero Ltd. invested the money they raised into the wholesale distribution of imported sweets, snacks, and groceries. They decided not to open a shop, as they were unable to find an adequate unit within their chosen city. Instead, they focused on their online sector. In the last two years, the company has:

  • grown turnover significantly; 2015 to 2016 saw 83% growth
  • increased their stock-holding capacity from 5,000 to 10,000 square feet
  • acquired a great number of additional wholesale customers
  • built a proprietary pre-order system
  • co-ordinated a huge UK product range comprising around 10,000 lines available for pre-order and export
  • improved internal systems with strong procedures that improve staff training processes
  • added powerful price and margin controls and mitigated currency fluctuations

Frank commented on their experiences with rebuildingsociety:

“They provided a smooth process prior to listing the application, support throughout, and a platform that is clear and easy-to-use. Rebuildingsociety is a very impressive social business that is a powerful tool when you need extra finance above and beyond what may have been already possible.”

Perhaps one of the keys to their online funding success was the company’s open-door policy. Frank discusses business with his team quite openly, “from the top to the bottom of the organisation, in response to any question.” Therefore, he embraced the discussion forums available on rebuildingsociety.com, believing that “talking business with lenders in a peer-to-peer environment with the same openness and clarity builds up the confidence to invest in us.”

Now, Candy Hero is back with a new loan application. The return borrowers are well-supported by rebuildingsociety’s lender base, something they hope will help them fund their £300,000 loan application. If successful, the team plan to refinance £184,000 to achieve cheaper interest per month and fewer capital repayments per month, and use additional capital to add to the stock cycle.

When asked why they decided to return to Rebuildingsociety, Frank explained that while their bank is very supportive, recently offering them a new import loan facility, they cannot approve a loan of this size. As he commented: “The only method of gaining a loan of this size would be crowdfunding and the only place I want to crowdfund is Rebuildingsociety.”

Read about the company on their website, and find out more about their loan application at rebuildingsociety.com.

Lending to businesses carries risk. Past returns are not necessarily a guide to future returns. Any unrepaid capital is at risk of arrears or default. To find out more please visit http://reb.so/risk


07th Nov, 2016

Our Recoveries Arsenal

Any investment involves risks. Whilst we pride ourselves on our ability to minimise the possibility of the borrower not repaying through our careful selection of businesses that meet our lending criteria and our proactive approach to credit control, there will unfortunately always be occasions where a business will fail and cannot repay capital and interest as agreed.

In this situation, it becomes necessary to commence our legal enforcement process to enforce the security offered by the borrower to secure the loan. Whilst this is not an option we take lightly, we are confident that our security requirements and our close working relationship with credit control agents, debt recoveries experts and in-house and external legal agents, we are well prepared to utilise the many tools at our disposal to recover the debt.

In this post, we briefly discuss a few of the types of security we take and the various powers of enforcement they each provide should the worst happen.

Debenture Powers

The key advantage in holding a debenture for security is the powers it gives you to enforce the charge against all assets of that business. Our debenture form creates a fixed and floating charge over the assets of the company. This fixed charge applies to the assets of the business not subject to any other legal charge. A fixed charge creates conditions over how the company deals or disposes with the assets in question. A company cannot sell the asset without either paying our charge or obtaining our permission.

The floating charge over all assets grants more flexibility to the chargee in what it applies to, and additional flexibility to the chargor by dispensing with some of the restrictions on use or disposal of the asset. The company is free to deal with its assets in the ordinary course of business, but we are protected when a ‘crystallising event’ takes place and the charge is crystallised. Along with any fixed assets (things like premises, machinery, tools), the debenture also creates a charge over the book debts of the company, and the floating charge applies to assets current and future.


Critically, the existence of a debenture grants secured creditor status, meaning that the debt is given preferential status and must be repaid before that of unsecured creditors. The book debts (which comprise individuals or companies which owe the business money), and all other assets of the business can be recovered to pay off our loan before unsecured creditors debts are considered.

Another advantage of a debenture is that it gives the holder the right to appoint an administrator to place the business in administration. This allows us a method to place our appointed insolvency practitioner in control of the company’s assets and operations, and allows the administrator to take appropriate actions to protect the assets of the company to satisfy its creditors and make a judgement on the survivability of the company in question as a going concern.

Our debenture also contains a ‘negative pledge’ which prevents further charges from being registered against the business without our express permission. This acts both as a safeguard to prevent the business in question obtaining additional secured credit, and also a way to protect the priority of our creditor status and limit the number of other parties with access to the powers a debenture provides.

Legal Charges over Property

On loans secured by way of a property charge, we have additional safeguards and powers regarding enforcement of the debt.

Before the funds are transferred to the borrower, our lawyers complete the legal registration of the charge at the Land Registry. Once this is done, this means that the borrower cannot sell their property without first satisfying our charge in full. Further, the borrower cannot remortgage the property or take additional charges without either satisfying our debt or obtaining our express written permission. This allows us a degree of certainty that the equity position in the property will not have dissipated when it comes time to call in our loan.

Investment in property comes with plenty of hidden risk

A property charge also gives us the power to petition the courts to force the debtor to sell the property in question, with the monies received from the sale used to satisfy the charges on the property. Whilst this is a powerful tool, it is worth remembering that not only are there several barriers to forcing a sale, but even when successful, it is often a time-consuming and expensive legal process. Further, factors like dependents in the property, children under the age of 18, a partner or ex-partner with a share of the equity are taken into consideration by the court and can complicate or delay the sale. Along with the time and legal cost involved, frequently the sale price achieved under a forced sale is less than a sale in optimal market conditions. For these reasons, wherever possible it is normally beneficial to use a forced sale only as a last resort when other options have been exhausted. Frequently, the threat of a forced sale is enough to bring a debtor to the table to either settle the debt in full or establish a repayment plan.

 

Personal Guarantees and Bankruptcy

Critically, as discussed in our previous blog post in this series, Personal Guarantees create a personal obligation for the debt. This allows us to go after the guarantor even if the original business has been wound up and ceased trading.

This gives us two main avenues to reclaim funds against the individual- bankruptcy and court judgements.

CCJs

Instead of seeking bankruptcy, we also have the option to seek a court judgement for the money owed. By applying to the County Court, we can ask for them to issue a CCJ against the individual to set out how the debt should be repaid. A CCJ is a court order mandating the repayment of the debt and setting out whether it is to be paid all at once or through regular monthly repayments. The court sets the repayments based on the defendant’s income. The CCJ is entered on the Register of Judgements, Orders and Fines and remains for six years. If the CCJ is unpaid, we have the authority to return to the court to enforce their judgement. Using this method, we can send bailiffs to collect payment. The bailiff will ask the debtor for payment within seven days and, if it isn’t paid in this time, will visit the debtor’s home or business to seize goods to pay the debt.

The advantage of a CCJ is that it allows you some additional freedom in enforcing the debt. If the debtor has commenced new employment, we can apply to the court for an attachment of earnings order to deduct money from the debtor’s wages and have it paid directly to us. We can also apply for a third party debt order, which allows us to petition the court for an order to seek our funds from a third party who owes money to (or holds money to the credit of) the judgement debtor. This can allow us, in certain circumstances, to apply to take money directly from the bank or building society account of the debtor.

Charging Orders

Another tool available to us to pursue an ‘unsecured’ debt is a charging order. This is a tool placing a charge to secure the debt against the debtor’s property. This can only be pursued once a court judgement has been obtained, and usually only when the repayment terms of the judgement have been broken. Once a charge is placed on a property, the owner cannot sell or remortgage the property without paying off the debt.

The disadvantage of CCJs is that, whilst they may appear to have a number of possible enforcement options associated with them, each have their own specific advantages, disadvantages and costs. They all rely on the administering of an order by a judge, and are only available in specific circumstances. A CCJ also nowhere near as effective a ‘threat’ as bankruptcy, which holds with it the possibility of your entire estate being liquidated, and can prove a very effective way of ‘encouraging’ co-operation.

There is also the ‘superseding’ effect of bankruptcy, and the dangers of wasting effort and funds on prior enforcement measures. Whilst it sounds tempting to utilise all of these various court orders and tools to enforce a debt, at the time a borrower defaults to us, they have often defaulted to one or more other lenders. If one of those lenders makes the debtor bankrupt before the CCJ is registered and the particular enforcement measure is successfully pursued, then the CCJ is essentially superseded by the bankruptcy. This means that the money and time spent obtaining the CCJ and petitioning the court to grant a particular enforcement order is wasted.

Bankruptcy

Bankruptcy is usually a ‘final resort’ in situations involving a defaulted loan and in fact, to successfully petition for bankruptcy you must demonstrate that all reasonable options have first been pursued, as the court seeks to prevent bankruptcy hearings being used as a ‘normal’ credit control method. Our legal agents are experienced in satisfying the legal pre-requisites to, where necessary, seek a bankruptcy order against a non-paying guarantor.


In bankruptcy, the bankrupt’s assets are assessed and their estate is vested in the bankruptcy trustee. The Trustee liquidates the bankrupt’s estate in order to pursue a realisation for creditors. Thus, once a bankruptcy order has been made, it falls to the Trustee to oversee the bankruptcy and work in accordance with the law to secure any creditor realisation.

Where the bankrupt has attempted to dispose of assets quickly at any point in the five years before the bankruptcy below their proper value (or indeed as a gift) the Trustee can apply to the court for an order voiding any transaction made at an undervalue.  This offers a degree of protection and recourse to us from the risk of a debtor disposing of assets before being made bankrupt.

A further method to do this is by way of a freezing order. We can apply to the court to grant a freezing order which prevents a debtor (individual or business) from disposing of assets before liquidation proceedings.

This was a brief introduction into some of the recovery options available to us and a discussion into the additional powers granted by particular security types. It is by no means final or comprehensive, and in each circumstance the tools utilised by us to recover your debt are decided upon after careful consideration of the case in hand and close discussion with skilled legal professionals with many years experience in debt recovery.

Lenders should be aware that irrespective of these tools, capital is always at risk, recovery is never guaranteed and past returns are not necessarily a guide to future returns. To find out more about the risks associated with Peer to Peer investments please visit our Risk Page.


24th Oct, 2016

Changes to the Marketplace

We’ve been working hard to bring you good quality borrowing applications for you to consider. Currently businesses that are eligible to borrow through rebuildingsociety.com, must have at least two years history, an average turnover of £50,000 a quarter and offer at least a personal guarantee as security. The average final rate paid by borrowers on our loan book is over 20% APR*, this rate is paid usually regardless of the security offered in support of the loan.

Currently, the risk rating given to the borrower drives the maximum starting rate for bids. To incentivise applicant borrowers to offer more or better security we are introducing a modifier to the maximum rate ceiling on the loan auction.

Whilst we currently take security into account during the underwriting process, it is not a significant factor in determining the risk rating given to the borrower, and therefore has little bearing on the cost of the finance.

From the 26th October 2016, the starting rate on a loan will be driven by the security strength and Loan To Value (LTV) score of the security rather than the final risk rating. The underwriting of the loan will be done in the same manner as before and risk ratings between A+ and C will continue. The weightings attributed to the determination of the Risk Rating in our model will remain unchanged, therefore a loan that was rated as C risk earlier, will still be rated as a C rated loan, allowing you still to view the suggested relative risk of the business.

The Changes in Practice

What is it?

A new borrower incentive to encourage borrowers to offer more and better security in support of their loan.

How does it work?

The borrower can offer a wide variety of security to support their loan. We’ve assigned a nominal value to the different types of security, making some security ‘more valuable’ than others. For example a 1st charge on a property will be deemed a more valuable form of security than a company debenture, and as such they will be rewarded with a lower starting interest rate.
The more security added, the more the starting rate will be reduced* as the security added works in a cumulative way linked to the loan to value ratio.
The starting maximum rate will never be modified lower than 5% of the standard maximum rates, which are currently as follows:

  • A+ = Max rate 11%
  • A= Max rate 14%
  • B= Max rate 17%
  • C= Max rate 20%

Therefore a C rated loan will never have a maximum starting rate of less than 15%.

The security we can accept from a borrower is ranked in priority below.

  • 1st Charge Commercial Property
  • 1st Charge Non Residential Property
  • 2nd Charge Commercial Property
  • 2nd Charge Non Residential Property
  • 1st Charge Residential Property
  • Fixed Asset Debenture
  • 2nd Charge Residential Property
  • All Assets Fixed and Floating Debenture
  • Corporate Guarantee
  • Personal Guarantee Insurance

Therefore, depending on the LTV on the security, a 1st legal charge taken on a commercial property in support of a loan will be ranked higher than a loan with an All Assets Debenture and may be achieve a lower maximum loan rate. Similarly, based on the above a loan secured on a 1st charge non residential property with an exceptional LTV will not achieve a better rate than a loan secured on a 1st commercial charge that also has an exceptional LTV, unless the former is accompanied by additional security.

Personal Guarantee’s do not qualify for a reduction in the interest rate as this is a mandatory requirement for all loans.

Why are we introducing it?

We have received feedback that the security being offered should have a more direct effect on the rate of loans. As such, we are rewarding borrowers who choose to back their loan with additional security. In the long run this should result in a higher percentage of secured loans and an increased rate of recovery.

When will it be introduced?

The security discount will apply to all new loans from Wednesday 26th October 2016.

How will this affect you and your use of the site?

The bidding process of the site remains unchanged as does indicative risk rating given to each loan, the only change will be the maximum starting rate of any loan that achieves the reward.

Will this be applied to historic loans?

No, but existing borrowers who reapply for new finance may qualify for the ceiling rate reduction.

Will this reduce my returns?

We expect any reduction in average gross returns to be offset by an improvement in net returns.

As ever you should always review each loan application in detail before lending. Where you have questions in regard to an application you should put these to the borrower via the discussion forum on each application.

If you have not already done so, please read more about the risks associated with lending to businesses.


11th Oct, 2016

Loan Book Security

Loans on rebuildingsociety.com carry varying types and levels of security, but what does this mean?

What is security?

Loans on rebuildingsociety.com can carry the following types of security.

  • Personal Guarantee
  • Corporate Guarantees
  • All Asset Debentures
  • 1st and 2nd Priority Charge Legal charges over property

Each loan profile will highlight what security is being offered on the particular loan. The headline information can be found on the Overview tab. Every loan on rebuildingsociety.com, unless otherwise stated carries at least a Personal Guarantee.


Security on a loan is the instrument that will be used to recover funds owed should a borrower fall into arrears and their account declared to be in default. The security will allow you or rebuildingsociety.com on your behalf to try and recover the money owed to you. Therefore, generally speaking, the more security offered by a borrower the greater the chance of recovering the debt if things go wrong.

Should it affect my lending decision?

In deciding to lend to a business, the security offered by the borrower should act to give you a higher level of comfort in your decision.
While each lender has their own underwriting system and investment strategy, generally speaking when assessing a business before bidding to lend, you should carefully assess the merits of the business itself rather than solely focusing on the security being offered. This is because loan security should only be a back-up to the lending decision itself as it only becomes a factor should the business be unable to maintain repayments and default. Many lenders may consider it prudent to first assess the business’s ability to repay the loan through assessment of the accounts and other information supplied before assessing the security as a later consideration.

It is important to note that whilst all loans on rebuildingsociety.com carry some level of security, recovery of funds owed to you are never guaranteed.

How is the Rebs loan book secured?

Rebuildingsociety,com has some of of the most stringent criteria on security being offered on its loans when compared to other platforms. What we mean by this is that whilst many of our competitors may offer loans of over £200,000 ‘unsecured’ (without a personal guarantee, or with a personal guarantee but nothing else), we insist that all loans carry at least one Personal Guarantee from the main directors or shareholders, and where the loan is for more than £50,000 we require extra security in addition to a personal guarantee.

How has this changed over time?

We try and source a variety of different businesses with a variety of different security so that there are opportunities to suit a diverse range of risk appetites.

We’ve taken a look into the level of security offered on all loans. Taking into account that many loans carry more than one type of security, we have only taken into account the ‘primary’ security on the loan. So for example; where a loan is secured on a PG, Debenture and 2nd Charge, we regard the 2nd charge as the ‘primary security’ as it is generally regarded as the strongest of the three and as such we have not included the other ‘secondary security’ in the graphs below.

The below pie chart illustrates the current primary security levels of all active loans in the Rebs loan book.

* Data is for all loans currently Active and Performing in the Loan Book

70.99% of the current active loan book is secured with more than a personal guarantee, with over 32% currently secured on a legal property charge.

Over time our lender base have asked us to provide them with more property secured lending opportunities, a call we have tried to answer.

* Data takes into account all loans fully funded and accepted over the course of the loan book

The graph below shows the change in percentage of all loans over the years secured by the various primary security types. As you’ll be able to see, the number of loans secured only on a personal guarantee has decreased year on year since 2014, whilst the proportion of loans secured by 2nd charges has increased year on year at a higher rate. This year already, we have secured more of our loan book on 1st and 2nd legal charges than any year prior to it .

Going forward, we will continue to try and source creditworthy businesses backed with higher levels of security.


26th Sep, 2016

Financial Services Regulation. What does it mean for you as a consumer?

FCA, TCF, FOS, OFT, PRA…As a lender on a Peer to Peer site, these are all acronyms you may have come across. But do you know what they stand for and what the regulation means for you as a lender? In this post, we take a closer look.

The Financial Conduct Authority (aka The FCA) were formally known as the Financial Service Authority and the Office of Fair Trading (OFT).

In 2013, the FCA was formed, taking over the operations of the FSA and the OFT and at the same time also creating the PRA, the Prudential Regulatory Authority, the authority that regulates the banks and insurers.

The FCA (who are directly accountable to HM Treasury and Parliament) aim to secure an appropriate degree of protection for consumers, protect and enhance the integrity of the UK Financial System and promote effective competition.

In 2013, the FCA announced that it planned to regulate the previously unregulated crowdfunding sector, including both the equity and debt-based sides of the market. Rebuildingsociety.com, having operated since late 2012, fell under the new regulation and authority of the FCA. As rebuildingsociety.com was already trading under the supervision of the OFT, it was granted Interim Permission and invited to apply for full permissions in October 2014.

So, how does the FCA go about ensuring that the firms under its supervision protect consumers (you)?

All firms under the authority of the FCA must meet the minimum applicable standards as set out in their Regulatory Handbook. The Regulatory Handbook is driven directly from legislation, primarily the Financial Services and Markets Act 2000 (FSMA). The handbook acts somewhat like a Bible for regulated firms, setting out how it should handle client money, how it must manage its promotional activity and communicate to their clients, to name but a few of the rules set out in the extensive Handbook.

Some of the most prevalent rules that go towards protecting consumers are the rules on Treating Customers Fairly (TCF) and Financial Promotions. These rules, if not followed, can result in firms facing penalties and restrictions and as such are taken seriously by regulated firms.

Treating Customers Fairly

TCF rules aim to raise the standards by which firms carry out their business. The TCF rules are driven by 6 outcomes that firms should measure their performance against. These principles aim to help you fully understand the features, benefits, risks and costs of the financial products you buy and minimise the sale of unsuitable products by encouraging best practice before, during and after a sale.

What are the 6 Outcomes?

  • 1. Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture.

Whilst this outcome may seem obvious at first, it is central to the FCA’s core mission to protect consumers. The FCA insist that firms make fair treatment of consumers core to their corporate culture and not merely a box ticking exercise to satisfy the regulator.

Firms are expected to ensure that all staff act honestly and with integrity and deliver a high standard of service to clients.

  • 2.Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.

This means that firms must not sell financial products to customers who do not need them, nor sell products that are not suitable to their specific needs.

This puts the responsibility on firms to ensure that they know their customers and their needs, so that they are not burdened with products or services that they do not actually need. For an obvious example, a firm should not sell a Pay Day Loan to a customer who does not have a job.

If you think back to PPI, or to the mis-selling of mortgages and the effect of the collapse of this market, you can see the importance of this principle clearly illustrated by the consequences of previous failures.

  • 3.Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.

You may have heard of the Latin Phrase, ‘Caveat Emptor’ roughly translated to ‘Buyer beware’. This is exactly the type of behavior that the FCA is trying to remove from the financial services sector. They want to ensure that firms do not hide important details in the small print.

Customers should be made aware of all costs, penalties and terms before entering into an agreement to ensure that they are fully aware of what they are committing to or should expect throughout the term of the product or service.

  • 4. Where customers receive advice, the advice is suitable and takes account of their circumstances.

Entering into a contract for a financial service or product is one of the most important contracts that many of us enter into. Think Mortgage, Life Insurance or Pension. As such, it goes without saying that when doing so you expect to be given advice that is suitable and tailored to your needs so that you are able to make an informed decision.

Firms that fail on this principle are subject to exceptional penalties.

  • 5. Consumers are provided with products that perform as firms have led them to expect, and the associated service is both of an acceptable standard and as they have been led to expect.

When you buy a financial product or service you should expect to get what you expected when you bought it. So if you open a savings account that you are told will yield a certain amount of interest each year, your savings account should deliver as expected.

  • 6.Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.

Firms must make it easy for customers to change providers, make a claim or submit a complaint.

Matters concerning financial products and services are often time sensitive and as such firms should react in a reasonable manner so as not to cause major inconvenience for their customers.

At rebuildingsociety.com, TCF is in our DNA. We’re always striving to improve your experience of the site and the service you receive from us. If you don’t think that we are meeting your expectations we’d like to hear from you so that we can put it right.

You can contact us either by phone or email, all details are available on our Contact Us Page.


21st Sep, 2016

How do we evaluate loan applications? Our lead underwriter explains.

At rebuildingsociety.com, we carefully assess the viability of every loan application that comes our way. To learn more about this process and understand what makes a business the best fit for our community, we’ve interviewed Philip, our lead underwriter and part of our underwriting and credit risk team, so he can answer some frequently asked questions.

1. What do you look for in a business whose application we will accept?

We look for growth in turnover and profitability, good cash management, sound investment decisions from previous borrowings and evidence that the loan from us will strengthen the business for the future. All this should be predicated on true and fair answers to my questions. Sometimes an applicant will not answer my questions truthfully. Difficult to believe, I know, but I assure you it can happen. However, a company that honestly meets the criteria above is highly likely to be listed on the platform.

2. What are some red flags that you often see? What will lead to a rejection?

Any identified deliberate misrepresentation will lead to an immediate refusal, and not treating my questions seriously will not enhance the applicant’s chances of a listing. Sometimes applicants attempt to hide information from us; this is when I ask questions to which I already know the answers. If I do not get the correct answer (often through negligence or incompetence) and I have to ask them to reconsider the answer they have given me, their chance of achieving a listing diminishes. Very often things are blamed on their external accountant. This is because we have no way of testing this advice and certainly no way of holding the accountant to account. However, in my experience, most poor decision making is done contrary to the advice of the accountant and he is a scapegoat when things go wrong. If I believe that the business is being run exclusively for the personal benefit of the directors and shareholders and that a loan from us is likely to be used for their personal benefit rather than to build up the company I will consider a refusal of listing. Likewise, some applicants will insist that audits have been completed or planning consent received when in fact those tasks are still in process. I am also very suspicious of applicants who refuse to file their completed accounts on the public record and say that their accountant has advised them not to do this; I don’t believe a word of it.

3. What accounts do we ask for and why?

We ask to see 2 complete years of statutory accounts which are filed on the public record at Companies House plus a third set of accounts from the beginning of the new financial year to a fairly recent date. This is to give the lenders a short recent history of the business and for them to see what the current position is.

4. What does our underwriting process involve?

I am a bit uncomfortable with describing it as underwriting, a word commonly associated with the insurance industry. A successful journey through the question and answer process that I control does not generate any guarantee or insurance for the lenders. I see my job as forensic accounting because it is an analytical process that attempts to come to a conclusion about the veracity of the accounts and tries to enhance the credibility of the figures and the disclosures so that the lenders have a reasonable basis on which to start their own decision making process.

To assess applications, we use our own risk tool which uses standard financial analysis based upon the critical data in a company’s financial statements to facilitate an overall view of the performance of the company. Specifically the tool looks at the liquidity, profitability and capital adequacy of an applicant; it also allows for an experienced subjective judgment, based upon other factors, to be made about the company and to influence the final decision about whether or not to list the application on the platform. We also use external ratings agencies to bolster our underwriting process.

5. What should lenders keep in mind when reviewing an application?

Lenders should make their own assessment of the application from the information disclosed and the Q&A on the platform. Forensic accounting is not a substitute for their own assessment, it is only an attempt to remove obvious inconsistencies and provide information that a reasonable lender should have a right to see. Lenders should be aware of the significant limitations in accounts generally and that my job can not remove these limitations to any large degree.

6. What is your background and experience?

I am a Fellow of the Institute of Chartered Accountants in England and Wales (ICAEW) and also a barrister (member of the Bar of England and Wales). My career has always been in accountancy and since the time of my qualification in 1981 I have worked in the industry as finance director and in regulation as a member of the secretariat developing accounting standards for the profession. More recently I have spent some years in the teaching and training field. Until June 2015 I was a long standing member of the Council of the ICAEW and the profession’s Ethics Advisory Committee. I helped to develop the risk tool that is an essential part of our underwriting function.


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