Last year, October had carried out a survey among their community of lenders in order to gain insights into the topics they were “eager to learn more about.”
One topic came back repeatedly: their platform statistics. To answer your questions related to stats, October is now continuing with their series of updates called October’s Data Dive.
In this third update, October will focus on a statistic that lenders are interested in: “the default rate.” They will take a closer look at “what this means, how to understand it in [their] statistics page and how to check it in your portfolio.”
Understanding the default rate
Before getting into the default rate, the October team are “going to explain the definition of what a default is.” In a nutshell, for a lender, “a default occurs when a company does not repay one or more instalment on time.”
Companies can “experience ups and downs throughout their life cycle and they may face liquidity issues at some point during their growth.” Therefore, when you lend to businesses, you “assume the risk that some of your loans might go into default.”
Therefore, the default rate “would be the number of defaults relative to any given portfolio of loans.”
You can find the default rates on the October statistics page.
They are available “whenever you need them and they are updated monthly.” On the page, they show the default indicators “required by the French regulator, Autorité de contrôle prudentiel et de résolution (ACPR), for lending platforms.” These indicators “might be difficult for a lender to understand clearly.”
As explained in a blog post, the default indicators “is calculated by dividing the total amount of defaults ever registered by October and compares it to the outstanding capital for each risk rating.”
With this method, the more October generates new loans, “the more the default rates will decrease.” In parallel, if October ceased all activities and no longer generated new loans, the default rate “will increase until the outstanding is only composed of defaulted loans and the ratio reaches 100%.”
For more details on how these calculations are performed, check here.
At October, the scoring model “determines if the company project is doable or not.” The credit score “ranges from A+ to C- (from high to low creditworthiness).” Therefore, the riskier a project is, “the higher the interest rate will be and C projects have the highest interest rate.”
At the beginning of each month, the Operations team at October “sends a direct debit for the monthly repayment to every borrower and checks if there are any issues.” Once that process is completed, the repayments will then be “sent to your account between the 15th and 20th of every month. in the case of a company failing to repay, you will receive a specific message explaining the situation and the recovery actions put in place.”
In another update, it was noted that saving money “is important to have a safety net against uncertainties and carry out personal projects.”
In 2022, according to a report from Eurostat, the savings rate of European households “reached 15% of their disposable income, lower than the 20% seen during the pandemic but still above the historical rate.”
With inflation rates surging, “putting some money aside is becoming more challenging and savers are looking for ways to protect their savings from inflation.”
Having a diversified investment portfolio “is one of them.” Traditionally, people used to buy a house or “rely on their financial advisor to invest their money in the financial markets or contract a life insurance.”
But with the development of the digital economy, several new options were born “to put our money to work and help us being in control of our savings.” Think about financing your peers or lending money “directly in a company to support their growth.”
For this last option, you can “now boost your savings by supporting the European SMEs of your choice on October.”
With October, you get the opportunity “to diversify your portfolio internationally by investing and you are in charge of your savings.”
October claims it is “the #1 SME lending platform in continental Europe, operating in France, Spain, Italy, the Netherlands and Germany.”
They connect companies that “need a loan to carry a growth project with lenders who want to support the local economy against an interest.”
To learn more about this update, check here.