Transfer Bids

Kylie Greeff
6th June 2018

Transfer Bids are a feature unique to rebuildingsociety.com, created to make lending to returning businesses easier and more efficient for lenders who wish to continue to support a borrower.

What are Transfer Bids and how do I use them?

After the first six months of repayments, an existing borrower may apply to re-finance. If one of the businesses you have lent to reapplies, you may re-lend the capital they owe you in the new loan auction. We call this a Transfer Bid because you are “transferring the capital owing from the old loan onto the new loan.” This allows you to bid without having to add more funds to your account. Of course, you can always bid your available funds as normal.

So, say you have £100 outstanding on A Company Ltd, this would be shown on your Dashboard, in the ‘My Loans’ tab. If A Company Ltd refinance their loan, you may transfer your £100 (or your amount to the nearest £10) to the new listing. When the loan completes, Transfer Bids are converted to ordinary bids.

TRansfer bids button

You can choose how much you would like to transfer in Transfer Bids, in what denominations, and at what rate.
Then when A Company Ltd’s first loan is redeemed on completion of their second listing, you will be repaid any capital outstanding and any interest due to you at the time of redemption. The value of your transfer bids (plus normal bids) are then taken from your balance and loaned to the borrower.

Transfer bids 2

Transfer Bids may not attract lender incentives on that loan. However, if you bid in addition to your transfer bids, these will go towards any lender incentive you may be eligible for.

Don’t want to transfer your capital to the new loan?

If you do not want to transfer your existing capital to the new loan, then you can simply do nothing. You will be repaid your capital and interest due as normal when the loan is refinanced, which is usually when the latest loan auction completes and is accepted. If the funding round is unsuccessful, then the business is still bound by its original loan agreement and will still be obliged to make repayments to you as before.

 

What to consider when using Transfer Bids?

Supporting a returning business can be a rewarding experience and where a business has previously made all repayments to you on time, may seem like a ‘no-brainer’. Depending on your investment strategy however, you should consider a few points before re-lending to a business.

When a loan is being refinanced, they will be looking for finance in addition to what they borrowed in the previous funding round, with the previous funding having been at least 3-6 months ago. Depending on the loan and the outcome of the underwriting by our credit risk team, certain aspects associated with lending to the business, may have changed since last time you lent to the business.

Therefore, it’s important to consider the merits of the new application.

The performance of the business…

Since the last funding round, the business will have had an opportunity to use the finance that they borrowed. During this time, there may have been industry changes or significant changes in the economy that might have an impact on the business and its future.

Consider whether:

a) did the business use the previous finance for what they communicated they would?

b) Has the business grown, declined or plateaued?

The interest rate…

Each time a business applies for a loan through rebuildingsociety.com, their application goes through our credit risk assessment, this is no different to returning borrowers. Depending on the outcome of the credit risk assessemen, the risk rating of the business may have changed compared to their previous loan, this will have an affect on the maximum interest rate at which lenders can lend at. For example, previously a loan may have been rated as a ‘C’ risk but on their new re-financing loan, they might be assigned a ‘B’ risk, meaning that the maximum interest rate might have reduced from 20% to 17%. So if you choose to transfer your bids to the new loan, you might not be able to lend at your original interest rate.

The security…

All loans on rebuilingsociety.com carry at least a personal guarantee from the borrowing directors. Where a business returns for additional finance we will quite often ask for additional security to support the larger loan amount, however this might not always be the case. Therefore, you should always check whether the security in favour of the new loan meets your risk appetite.

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