P2P has the potential to be THE alternative to the high street banks.
How do business enterprises find capital to fund expansion and growth, manage or accelerate the timing of a business plan? How do the capital markets allocate financial capital locally, nationally and globally? Carving up risk profiles and matching returns to the risk feeds into the equation. Assetz Capital created its own P2P operation in answer to business capital needs in the United Kingdom and a desire to move into the sector with its own take to add to the capital conversation.
Peer to Peer lending has boomed in the UK, while Assetz has been around since 1999 they are a relatively recent entry into this crowdfunding domain. We decided to reach out to Assetz and learn more about their company.
Andrew Holgate is the founder Founder and Director of the Assetz Capital Group and Managing Director, Assetz SME Capital Limited. He started his career at GE Capital before moving to NatWest, Allianz and finally RBS Group. Having spent spent 15 years in the SME finance industry he understands the challenges inside and out. He was very kind in answering a few questions about his company.
KV: Please share how the concept for Assetz came about. Who had the idea to get into P2P? The company has been around since 1999 so adding P2P appears to be a natural expansion for the business.
Andrew Holgate: The three original directors of AC, Stuart Law, David Penston and Andrew Holgate, wanted to move into this sector. Stuart’s Assetz Group, which is the UK’s leading buy-to-let broker, had the investor base that it had built up since 1999, while David and Andrew had the banking experience. Very quickly from a business idea Chris Mellish joined the team as CTO. He had written software for another large platform and was an ideal choice for us. Soon after that, Paul Moore joined as Chairman. The 5 founders all had an interest in the sector but believed it could be done better. We believe we have one of the best boards in the sector.
KV: What are some statistics as to the range of size of loans? Number of investors per loan?
Andrew Holgate: We have lent from £35k to £1.5m, but the average loan is £200k to £300k in size. We have just over 1900 lenders registered to us and the average investment per loan is around £750. Not all investors go into every loan but they pick and choose in order to spread the risk. Our smallest investment has been £20 and the largest over £600,000.
KV: All loans are asset backed. What percentage is based off of Real Estate? What are some other types of Assets which have been used to raise debt?
Andrew Holgate: Around 90% has some form of property as security for the loan. However we have taken charges on other assets such as boats as well as plant and machinery.
KV: With an average annual interest rate of 10.3% this appears to be very high compared to traditional loans.
Andrew Holgate: Banks currently lend at around 5%-7%. Our rates are higher for a number of reasons. Banks currently are risk-averse meaning they have very tight lending criteria. They may turn down a loan that is affordable and has lots of security simply because it doesn’t match their criteria. This doesn’t make it a bad loan but with the risk being higher than conventional bank debt, the interest rate is higher.
Also, banks use leverage. This means for every £1 they have in deposits they will make £5 of loans. For every £1 our lenders have, we make £1 in loans. This means the banks can charge less for the loans as they can do more lending on a pound for pound basis. This makes them cheaper. I don’t think I need to explain why this is a potential problem for banks!
We also live in times where base rate is very low at 0.5%. This has led to a feeling that 10%+ is expensive. Yet only 15 years ago we saw base rate at 5%-7% and lending rates at 10%+. We are not too far away from traditional rates.
KV: How many loans have failed and how do you manage the process of the debt holders collecting on the Asset?
Andrew Holgate: So far, no loans have failed. We have the most senior lending team in UK P2P lending and go to great lengths to ensure that the businesses we lend to are creditworthy, and believe that we’re among the best equipped to minimise and deal with defaults. More detail is given is available on our web site but in short the team has over 50 years experience in default management and insolvency.
Having tangible security on each loan gives us a big advantage: in the event of a default, we’ll be able to use this to ensure that we’re able to recoup as much of the original investment as possible in order to protect our lenders – we estimate that our default rate will be around 2%, but that our actual loss rate will be substantially lower than 1%. This wouldn’t be possible if we relied only on personal guarantees from directors.
If a business does struggle to repay a loan, we will act on the first missed payment – we have an in-house insolvency expert and we’ll do everything possible to help businesses repay their loans, using the advice of well-established firms such as Grant Thornton to manage the process, and doing everything possible to help businesses to repay their loans.
KV: What type of due diligence does the firm do on each security?
Andrew Holgate: Every property has a valuation done by a RICS qualified surveyor. If it is more unusual kit, (we once approved a loan where the security was a boat), we will get in a specialist valuer to give an opinion on the asset. We undertake a visit as well to see the asset with our own eyes. But it is not just about value of the asset, it is also about how you realise that value if needed. We recently were asked to lend against scrap metal valued at £500k. As a commodity it was very easy to get a value for it, but where would you sell it? We don’t have those contacts and as such sought other assets as security.
KV: Do you see your Lenders Trust as a competitive advantage in the P2P market?
Andrew Holgate: Absolutely: if a P2P lender does not segregate your money into a ring-fenced, independently managed trust, then I would advise you not to invest. We have already seen instances of P2P lenders being set up abroad where fraud has happened. Our Trust is run by Grant Thornton, one of the world’s biggest accountancy firms. How many other P2P lenders can say that? It was our choice to do this and is well received by our lenders. So yes, it is an advantage.
KV: What is your fee structure for these loans?
Andrew Holgate: We don’t charge lenders any fees. The borrowers pay all our fees depending on the level of work involved.
KV: How do you see P2P lending evolving in the United Kingdom?
Andrew Holgate: This industry has the potential to be a powerful new force in banking, without the complication that the banks bring. In the US, Lending Club has lent £2.5bn in a few short years including £200m in the last month. P2P has the potential to be THE alternative to the high street banks.
KV: Are you concerned at all about the FCA applying excessive regulation on your industry?
Andrew Holgate: We welcome regulation of the industry. Good regulation protects the consumer but allows for a commercial profit to be made. We believe the FCA will be appropriate and proportionate in their regulation of the industry. As a business, we have already laid the foundations for being a regulated business and undertake processes and procedures that major banks do, even though there is no requirement for us to do so yet. Without regulation, this industry could be open to abuse which will stop it from fulfilling its potential.
KV: Do you plan an expanding outside of the United Kingdom? If so – which countries?
Andrew Holgate: We’re concentrating the UK, but the industry has the potential to be global, not just national.