Underwriting and Credit Risk Review | Our Process Explained

All loans listed on the rebuildingsociety.com platform are assigned a risk rating of A* to C. Businesses may also have a risk rating of ‘D’ or ‘E’, however in this case they would not be approved for listing on the platform.

Risk ratings, sometimes called ‘bands’ or ‘tranches’, indicate the risk of lending to a particular borrower, with higher risk loans providing higher levels of interest.

  • A* = Max interest rate 11% – LOWEST RISK
  • A = Max interest rate 14%
  • B = Max interest rate 17%
  • C = Max interest rate 20% – HIGHEST RISK

Why are there risk ratings?

Risk ratings are determined by the Credit Risk Team by taking into account a wide range of data points. Generally speaking, ‘A’ rated loans are considered to be lower risk than a loan rated as a ‘C’, which would be considered higher risk and would, therefore, have a higher maximum interest rate.

The starting interest rate of a loan is based on the risk rating’s maximum interest rate, as well as on the security the business has offered in support of the loan. (Please click here for more info on loan security.) Lenders can choose to offer a lower interest rate when bidding on a loan, however they cannot charge a higher interest rate than the starting rate.

When deciding to lend, it is important that you decide for yourself whether you consider the business to be within your risk appetite. If you are unsure about whether to lend, we recommend that you speak to an independent financial adviser before starting.

Where does the data come from?

In assessing borrowing applications, we use information provided by the borrower in their application, as well as data from leading credit agencies and data suppliers.

Our team thoroughly investigates the business and its directors in any way they can, including internet searches, telephone calls and visits to business premises where possible.

What data do we need in order to determine a risk rating?

Loan details

  • Amount
  • Term
  • Purpose (i.e. new premises or business acquisition)
  • Special considerations

Company details

  • Sector volatility
  • Sector morality
  • Basic external credit score
  • County Court Judgments (CCJs) against the business
  • Personal credit history of the directors and any CCJs against them
  • Related companies
  • Adverse internet and media search results

Security details

  • Security offered
  • Value of security
  • Loan-to-value (LTV) ratio of security
  • Would the security hold its value should the company have difficulties?

Company Accounts

  • 4 years of accounts, although we will accept 2 under some circumstances. VAT returns and Management Accounts can also be submitted in support of the application
  • Do the accounts provided by the business match Companies House figures?
  • Are there discrepancies in the figures?
  • Are there any items or lines to be concerned about, or any unexpected sections?
  • When were the last accounts filed?
  • How well put together are the Management Accounts?
  • Do the VAT returns show figures in line with expectations?

Details of other debt

  • How much?
  • Who holds it?
  • What level of of security is held, and who is first in line for each form of security should there be a default or issues with the loan?

Key risks

  • Affordability of loan repayments for the business based on current/historic trading levels
  • Losses
  • Negative equity
  • Borderline security

Additional risks

  • Any other risks discovered during the review process

What financial analysis is involved?

After the data is collated, our Credit Risk Team transposes the data into a model to perform an analysis focused on the following areas:

Each quarter the Credit Review Committee meets to review the effectiveness of the credit risk analysis model and make any necessary changes.

What happens after the Credit Risk Team’s analysis?

After financial analysis of the data, an indicative risk rating and starting interest rate are assigned to the loan request. Security and finance experts then review the rating and rate together with the data, and raise queries with the borrower.

The borrower responds, and the rating is adjusted and finalised.

The rating is then passed to the Credit Review Committee where 2/3 members must vote to proceed with the loan. They may ask questions or request a reduction in the loan amount, greater security or other amendment.

What does an A, B and C risk rating look like?

Understand the Risks: When lending, your capital is at risk | P2P Investments are not covered by the FSCS | Past returns are not an indication of future returns | Find out more about the risks of P2P lending

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