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.

12th Sep, 2016

Personal Guarantees: What Do They Add?

Unlike some of our competitors, every single loan we list on our platform is backed by at least a Personal Guarantee (PG). Here, we will look at a few common questions about Personal Guarantees.

What is a Personal Guarantee?

In the simplest form, a Personal Guarantee is a guarantee under which an individual agrees to be responsible for the financial obligations of a borrower or debtor to a lender, in the event that the borrower or debtor fails to pay an amount owed to the lender.

Why do we use PGs on every loan?

We want to present you, as our lenders, with the best possible lending opportunities. In order to do this, we ask each Director of the companies we list on the platform to offer a Personal Guarantee in support of their application.

Firstly, this forces each Director to effectively ‘put their money where their mouth is’. We ask them to demonstrate their confidence in their business and their lending proposition by offering their personal financial resources as additional cover should the loan default.

Furthermore, as discussed in a previous post in this series, a key concept of limited companies is the limited liability entailed. This means that Directors are only legally responsible for the debts of their company to the extent of the nominal value of their shares. A Personal Guarantee creates a personal liability for the full loan amount upon each individual guarantor. Crucially, this provides a ‘secondary avenue’ to pursue the amount owed, distinct from the company itself. This can often be a useful avenue when action against the business is not possible, such as if a business exits administration through liquidation with no dividend expected for creditors.

The presence of a PG can also prove useful in situations where the business is still trading, and even in before a loan is even in default.

A Personal Guarantee carries with it the potential of Bankruptcy Proceedings should a Guarantor be unable to repay the debt. Bankruptcy carries restrictions and penalties, which include (among others) acting as a director, setting up or running a company or taking credit above £500.00. In addition, there are a large number of bankruptcy offences which, if convicted of, constitute criminal offences which can be punished by a maximum of 7 years in prison.

The potential penalty of bankruptcy can often form a powerful negotiating tool, and work to steady the mind of a director to prioritise making repayment arrangements in order to avoid the prospect of bankruptcy. This gives our collections team a powerful negotiating tool available on day one of a repayment being late.
Should a loan begin to perform poorly, the existence of a PG can also result in the establishment of a more favourable repayment agreement due to the Guarantor being likely to concede more in order to avoid further legal action and bankruptcy.

How do we enforce a Personal Guarantee?

When a debt is enforced against a Guarantor, they will initially be personally served with a Statutory Demand for the claimed debt. From service, a debtor has 21 days to either settle the debt in full or propose an acceptable repayment schedule. A failure to do this will lead to the commencement of county court proceedings or the presenting of petitions for a Guarantor’s bankruptcy.

Once a Bankruptcy Hearing date has been set, a Debtor has a further opportunity to come to a repayment arrangement (which may involve the submission of an Individual Voluntary Arrangement). Our legal agents attend the hearing on behalf of lenders and will usually petition the court to make a bankruptcy order.

After a Debtor has been declared bankrupt, if the court has appointed one, their estate will vest in a Bankruptcy Trustee, or if not, the Official Receiver. Our legal agents liaise closely with the court, the Bankruptcy Trustee and Insolvency Practitioners during the bankruptcy process in order to secure a dividend for lenders. The bankrupt’s estate is reviewed, the nature of the assets are determined and eventually their estate is liquidated to secure a recovery dividend for the bankrupt’s personal creditors.

Along with the financial dividend paid from the bankrupt estate to creditors, the bankrupt’s conduct is reviewed by the Official Receiver, who investigates and if it is deemed that the Bankrupt has committed any bankruptcy offences, then the court may make the appropriate bankruptcy restriction orders to extend the usual bankruptcy penalties or seek a custodial sentence.

01st Sep, 2016

Do You Know… What we look for?

There is a lot of work which goes on behind the scenes from the point when an application is first submitted until the point at when it goes live on the marketplace.

To give you an idea of the time involved, the borrower team spend an average of nine days on the assessment phase of an application, from the initial submission to listing.

This time is spent analysing the prospective borrower’s submissions, assessing the accounts and security submitted, asking pertinent questions about the business, liaising with the applicant to get more information on their business or additional security to support their application and, when identified, requesting amended accounts in circumstances where accounting errors are spotted, to ensure that the figures presented to lenders are as fair and accurate as possible.

First and foremost, however, a listing must meet our basic lending criteria, and we filter out those that don’t at the first instance. Our five basic criteria are as follows:

1) The applicant must be a limited company.

We do not offer loans to partnerships, sole traders or individuals. Limited companies are by law separate legal entities from their directors or shareholders. This means that there is a clear legal distinction between personal finances and the finances of the business. We can assess the strength of the business purely on its own merits and look at the personal finances of any directors or shareholders separately to assess the suitability of security.

A Limited company is required by law to produce fair and accurate accounts to be filed at Companies House available to the public record every year, along with an Annual Return listing directors and shareholders. This allows us to cross-reference accounts submitted by applicants with those filed at Companies House, an important security check we conduct on every application before listing.

2) The company must have two years or more of trading history.

Recent statistics suggest that up to nine out of every ten start-up businesses will not survive past the first two years. The risk of failure usually reduces after each year of successful trading. We require all businesses we list to have at least two years of prior trading history. This allows us to mitigate the risk of failure by only listing businesses which have already survived the most risky period. It also gives us at least two years of business accounts to assess, and lets our underwriting team get a more accurate idea of the business, adjusting for one unusually good or bad trading year.

3) The business must be profitable and must have a turnover sufficient for our affordability criteria.

As part of our lending criteria, we require that every business we list must have made a profit in the last two years of trading. On top of this, we also use our bespoke risk tool to calculate whether the loan repayments are affordable, taking into account factors such as the business’ turnover, net profit, liquidity and the equity/debt ratio.

4) The business must meet our risk rating requirements.

Along with affordability calculations, our bespoke risk tool also gives each application a risk grade from A+ to F-, factoring in a myriad of criteria from turnover, profitability and growth to liquidity, credit rating, repayment history and creditworthiness.

Any business which scores a D+ or below is rejected. If a business scores C- or higher, should it also meet our security and affordability criteria, it is listed on the marketplace with the appropriate risk rating.

5) The business must also meet our security requirements

Before making it on to the marketplace, businesses must fully satisfy our security requirements, which are considerably higher than most of our competitors. Firstly, unlike some other platforms, all of our loans are backed by Personal Guarantees as a minimum. For any loan request in excess of £50,000, we also require additional security in the form of a Debenture or a Legal Charge over Property.

In addition, in order to try and ensure the greatest prospect of recovery should a loan default, we also require that the total value of all security offered must cover the full loan amount requested. Our underwriters determine the value of each form of security offered by a prospective borrower and should the sum be less than the full loan amount, the borrower will be notified that additional security will be required in order to list.

The above 5 steps are just the first part of underwriting process. Once these initial checks have been done, the application is then pre-approved to undergo further, more stringent assessment.

31st Aug, 2016

Did you Know: About our Late Repayment Process

We take every measure we can in order to avoid it, but from time to time, a rebuildingsociety.com borrower will fall behind on a repayment. When they do, we have a robust process in place to deal with it.

We know that, when a loan repayment is late, investors value two things: time and information. We have built our repayment process so as to quickly bring an account up to date and to communicate to you the actions we are taking and the reasons for the late repayment.

Many platforms allow a borrower a period of grace before starting to chase a late repayment or recognising it as overdue. We don’t. As soon as a repayment is 1 working day overdue, we start to make contact with the borrower to findout what is wrong, and as soon as we learn anything, we let you know by posting an update in the Loan Updates tab of the application.

All our late payment collection work is managed by a professional and experienced debt collection company, who have specially dedicated team members managing our account.

Day One: Our late repayment team will email and call the borrowers to notify them that a repayment has not been received and to determine why this has happened and when the repayment will be brought up to date.  The outcomes of these emails and calls will be passed on to you.

Day Two: Five: If the repayment still has not been received our collections team will call and email the borrower and points of contact again, and continue to do so daily. The borrower will be a warned that late repayment fees and interest will begin to accrue on their account and that these will be due and payable.  Any communication with the borrower will be posted on the Updates Tab so that you are kept in the loop .

Day 6 – 10: If by this time the collections team still have been unable to either contact or negotiate a payment plan with the borrower, they will write formally to the directors, to inform them that their account is in arrears and that the loan may become at risk of default.

By this time most late repayments will have been recovered and will not need any further action, however on occasion, we do encounter some loans that progress beyond this stage.

Day 11 – 30: Up to this point the directors and named point of contacts will have been receiving daily calls and emails from the collections team. If no repayment plan is in place at this stage, we will take action to write formally to the guarantors, warning them that the account is arrears and that that it may be at risk of falling into default and becoming immediately payable on demand.

Interest and fees will continue to accrue on any overdue account and will need to be paid to bring a borrower’s account up to date.

Should a repayment not be received after 30 days, micro loan trading on a loan will be suspended. This is our first step to taking further legal action against the borrower. Where a loan is declared a default the account will be passed on to our legal recovery team who will look to call in any security on the loan

To understand the late repayment process more you can view our late repayment flow chart here ( https://www.rebuildingsociety.com/invest/loan-repayment-recovery/)

06th Jul, 2016

Did you Know: We Monitor all Active Loans

Our Did You Know series highlights features, aspects and information about the platform that may have passed you by.

When a loan auction is completed, rebuildingsociety.com staff get to work behind the scenes on ensuring that it’s as successful as possible for all parties involved. A huge element of this involves carrying out ongoing monitoring of the active loans on our loanbook.

We focus our energy on this in order to spot any potentially adverse information regarding a business, and pick up on payment trends that may signal either an improvement or decline in the strength of a business. By keeping an eye on this information, we are able to contact the borrower to notify them of information around their business that they may not know about, and we can get in touch with them to see whether they need any assistance or help during what may be a challenging time.

Our monitoring of businesses is ongoing and is made possible by a third-party business data analytics service. All active loans are monitored through this service and changes to the businesses are brought to our attention on a daily basis.

On many occasions, where a County Court Judgement (CCJ) is filed against a business, the business directors themselves are unaware, and so our monitoring of their business allows us to alert them to the adverse information in order that they can adequately respond and take action to protect their business and credit scores.

Aside from this third-party monitoring, we also actively engage with the borrowers to find out more about how their business has been doing and whether they expect any challenges, have faced any recently, or whether they are in need of particular assistance to help their business grow. Unfortunately, not all businesses respond to our engagement, but where they do we post the updates for lenders on the Loan Updates tab of each loan, which can then be read directly from your Dashboard.  If you haven’t checked up recently, there may be news about a business you have lent to waiting for your perusal.

Our borrower and investor community is stronger as a group, and will grow stronger and faster through better engagement and interaction between the lenders and borrowers even after a loan has been funded. We encourage lenders to support the businesses they have invested in by buying from them, or recommending them to friend – and, where a borrower is brave enough to ask for assistance, remember that your input could have a valuable impact in helping the business continue to thrive.

24th Jun, 2016

Did You Know: Our Application Process

Our Did You Know series highlights features, aspects and information about the platform that may have passed you by.

An application has to go through 3 distinct Stages prior to listing and it could be rejected for a number of reasons throughout this period. In the operations team we receive around 40-50 applications and enquiries a month and reject 79% of these.  We only allow the strongest applications with appropriate security on to the platform.

We reject 24% of our applications in Stage 1. We filter out any application that does not meet our basic criteria (more on this below) and some applicants choose to withdraw at this stage.

In Stage 2 we gather all of the required information for the application including security information and accurate accounts.  This is the longest part of the process as applicants often have to engage their accountants to make edits to their management accounts to bring these in line with our minimum standards and expectations. It is important to us that the accounts are presented to the lenders in both an accurate and comprehensible way.  We have 36% of all applications rejected or leaving the process at this stage.

In Stage 3 all of the gathered information is passed to the underwriting team to ask questions about the accounts, assess the risk of loan and to determine its suitability for listing. 15% of all applications are rejected at this stage which represents 37% of the applications that make it to this stage.

The remaining 25% of applications make it to listing, where 2% fail to raise the funds, 2% fail during the completion process and 21% are fully funded and completed.

18% of our rejected borrowers are ineligible and do not meet our basic criteria of turnover, entity, UK based, profitable and able to provide the required accounts.

23% of those rejected meet our criteria, but are rejected by the underwriting team because they do not pass our risk model, or in some way are unsuitable for the site.  This includes 6% with insufficient security, 4% where the loan is unaffordable.

14th Jun, 2016

Did you Know: We do Credit Checks on All Borrowing Directors

Our Did You Know series highlights features, aspects and information about the platform that may have passed you by.

When we receive a loan application, we take it through a number of checks and verifications, and a whole lot of scrutiny, before we allow it to be listed on the platform for your consideration.

These checks focus mainly around the business and its ability to service a loan at the likely rate that it will achieve on the site, as well as taking a look into the business’ previous trading history and the associated businesses linked to it through its directors and shareholders. Much of this information is driven by third-party data services, which use thousands of touch points to bring together a more comprehensive picture of the applicant business.

This information is then used in our bespoke risk tool, and the accounts supplied by the business are further analysed by our underwriters to ultimately determine a risk score between A+ and C. A business can fail in its application at any stage through this process; only 20% of the businesses that apply make it through to listing.

Aside from looking solely at the business, we go a step further and also look at the people behind the businesses. We take into account the businesses they are involved in, and the businesses they may have previously been involved in, as well as their personal credit history.

We do this because we understand that many businesses are strongly driven to success – and sometimes, ultimately, to failure – by the direct actions of their directors and majority shareholders. What’s more, if a business does fail, all loans on rebuildingsociety.com have at least a Personal Guarantee, which means that the directors may ultimately become responsible for the debt of the business should it fail to make its repayments. It is therefore important for us to know more about the directors and their personal financial history, and we do so by carrying out personal credit checks. This data is then used to further our assessment and risking of the business, contributing to the final rating.

Where a director of an applicant business has a poor credit score or has adverse information, their application may well be declined on this basis.