Results and actions from our Contingency Fund Survey

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Nick Moules
7th February 2014

Before Christmas we launched a consultation for lenders on the possibility of a contingency fund. Following a good response from existing lenders, we’ve compiled the results and found that a contingency fund would be welcomed on the whole by newer lenders, but not so much by experienced lenders.

With that in mind, we’ve set about creating the framework for our fund, which would be a first in the peer-to-business lending market in the UK.

We intend to make it opt-in for existing lenders, so those that value our market-leading gross returns can continue to operate at that level and opt-out for new lenders, to give them an element of comfort as they being lending.

Further feedback was given on the percentage of interest earnings to be deducted as fund contributions. Many felt 20% was too high, so we intend to start off with 15% and then review. We felt it was fairer to do a percentage amount, rather than a fixed fee. One reason for this is those with an appetite for lower-graded businesses will contribute more.

The fund will be backed by £50,000 of shareholders funds, so we’re putting our own cash on the line here. We hope this will reassure lenders that the same standards of underwriting and due diligence will apply, regardless of the fund’s existence.

Other results

Overall, we were pleased with the participation level. Roughly half of our active lenders at the time contributed to the survey, which gave us a good sample size. Distribution was excellent even across experienced lenders, new lenders, those with a lot invested and those with a little.

-          Nearly ¾ of respondents prefer to lend in the auctions, rather than the secondary market

-          There was an even spread on the influential factors when deciding whether to lend. Security, profits and the director’s answers to questions were the most popular answers.

-          2/3 of respondents thought the platform was doing well or ok. (We recognise we’ve got work to do!)

-          40% of respondents have more than 20% of their p2p portfolios with rebuildingsociety.com. As we have less than 1% of the market, this was pleasing

-          For a third of respondents, the introduction of a contingency fund would not alter their lending behaviour. For 25% it would widen their lending criteria and just over a quarter would lend more.

-          There was a general lack of awareness about the Crowdfunding Podcast. We’re supporters of the Podcast and have offered to promote a good source of independent coverage on the sector. You can download the Podcast here

Draft terms and conditions 

Using these results and other ad hoc correspondence with lenders, we’ve compiled the first draft of our contingency fund terms and conditions, which you can download here.

Please reply to the bottom of this post with thoughts / suggestions on them by Friday 21 February. We’ll do a further iteration of this before anything goes live, with the scheduled launch set for 28 February 2014.

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