We here at BanklessTimes are always looking for new forms of alternative finance, as we do not want to become entrenched in one way of doing things. So, why not go tranched instead to mix things up?
Brian Bartaby is Founder and CEO of Proplend, a P2P company based in London and Ascot, England. They connect investors and borrowers directly. Borrowers back their loans with income producing commercial property provided as a security against default.
The loans also come with a unique twist. They are split up into tranches, the French word for slice. Each tranche comes with a different level of risk and a different interest rate which reflects that risk. This allows investors of all risk levels to participate in each loan without having to wait around for a loan which matches their appetite to surface.
Mr. Bartaby spent some time discussing Proplend, the P2P system in the U.K., and the concept of tranching.
You retain six months interest on draw-down and keep it to cover delinquent payments. Are there other steps you take to protect the investor?
Apart from the due diligence that we carry out before the loan request is listed live, we feel that the six months interest is a good protection. The borrower only has to miss two monthly payments for the loan to go into default and at that point they risk losing control of their property.
As of April 1 the Financial Conduct Authority is the regulator for P2P platforms. Will that have any effect on the industry?
The FCA has taken on a huge remit in not only taking on the regulation of what was the Consumer Credit Licence but also the P2P industry and other sectors that fall under the crowdfunding umbrella. Initially it has given the new industry a badge of respectability but at this stage it is difficult to comment on how effective the FCA regulation will be.
There is some concern that, given the rapid nature with which P2P is evolving, that the next planned FCA review in two years is too far off and will stifle innovation in the interim. In your mind is that a legitimate concern?
I don’t think so. There is huge political pressure for this new industry not to be stifled as it allows hard cash to get directly into the hands of entrepreneurs and SME’s who will hopefully provide the jobs and growth that this country needs. The government has directly lent approximately £70m via P2P platforms.
There is an element that is skeptical of crowdfunding because they feel the companies have not done enough to protect investors from fraud. Have companies done enough or are these criticisms accurate?
I cannot really comment on crowdfunding as although part of the same ‘alternative finance family’, secured P2P lending is a very different and transparent business model. Personally I feel much more comfortable offering lenders a lower but risk adjusted interest return which is supported by a real asset and an existing income stream.
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