Full Disclosure? What CapitalRise Shows Lenders

I realised recently that 4thWay focuses so much on getting enough information, data and access to key people for ourselves that we don't always remember to provide you with enough information about what you are told directly by the online lending platforms.

I'm looking to rectify that over the next 12 months. I'm starting today with CapitalRise*.

As independent analysts, 4thWay typically receives a great deal more than lenders do. But you still need to get enough information directly from the providers to make your own decisions about whether to open accounts and start lending.

Usually, you must also choose your own loans, so you need enough specifics about them.

What's more, you need to be provided with sufficiently detailed and candid updates about the progress of ongoing loans.

What information CapitalRise initially provides you about loans

Naturally, any information you get on a prospective loan is filled with jargon. There's no getting around that – you simply need to learn the language before you lend or invest in anything.

However, on the whole I like the depth of information CapitalRise provides. It's not so detailed that lenders won't read it, but still explains all the facts in relatively plain English.

The highlights at the top include the key numbers: the forecast rate of return, the loan amounts, the estimated term and the loan size compared to the property value (loan-to-value or “LTV”).

The highlights also nicely lay out your position in the loan – which is essential since CapitalRise has a relatively complex structure whereby you might have the advantage of a first charge but still be junior to other CapitalRise lenders, as you can be further split up into different tiers in return for different potential rewards.

In a summary of the opportunity, CapitalRise then tells you the reason for the loan and any relevant history, e.g. if the loan is being refinanced from another loan with development works already completed.

In simple language, it describes the plan: how the funding will be used in this loan and in related loans or tiers.

You get a clear description of the location and property, and you learn where the borrower is based.

You then get more details on the current value of the land or property, and on the expected value if the loan is against a property being developed.

You learn who valued it and how it was done, e.g. if it was a full red-book valuation by a RICS surveyor. Would you believe that not all online property-lending providers do full surveys of every development or property!

With each project, there's a project monitor, so CapitalRise next includes a bullet list of any already-completed works observed by the monitor: from underground drainage being completed to second-floor windows being installed onto completed roofs and removed scaffolding.

CapitalRise explains in an investment structure section how your loans will be ring-fenced from contamination from other development projects if those others were to fail.

Documentation you have sight of to begin with

I think it would have been good for transparency if CapitalRise had provided you with the actual surveyor's report. In my experience, few prospective lenders read such lengthy documents, but, even for them, it's good to see that the report has actually been done.

I also would prefer to have sight of the actual loan agreement with the borrower, as some details in it can be useful. For example, you can see if the borrower is correctly being treated as a business borrower for regulatory purposes or whether the provider is adding on massive penalties in case of borrower default, which can create a conflict of interest.

CapitalRise is not a suspect in either of those things, but it is still useful for lenders to have that reassurance directly for themselves.

The documentation you get is your own (obligatory) legal documents: your loan agreement (bond deed) and the deed showing how the property is taken as security for your benefit (the security trust deed).

Quarterly loan updates

One area of weakness generally in the wider P2P and online direct lending market is in keeping lenders updated on the status of ongoing loans. Even though that is particularly important in development lending.

CapitalRise does a good job here, routinely providing the updates as expected.

Along with a reminder of the key statistics of the loan, these updates include a traffic light system to show you the status of green, amber or red. More importantly, you will read a description of the progress and latest expected outcome of the loan.

CapitalRise notes what still needs to be done is noted, such as the state of any building works, final safety sign-off from the council, the progress on the sale of any of the housing units in a development, and how much that will repay lenders.

CapitalRise states if it remains confident the loan will be repaid on time. It outlines how long the remaining buffer zone is for lenders if the loan overruns.

It's easy to follow the thread of what has been going on in its quarterly updates, because CapitalRise references what was written in the prior update, e.g. as new buyers are found and units sold, or as the developer shifts its exit strategy to buy-to-let, or as issues with development works are resolved.

Its quarterly updates are good and punctual, but I think it could sometimes provide just a tick more information.

For example, in one update last year it said that there were 12 housing units remaining to be sold with seven under offer (that would repay the entire loan by themselves). But it noted that the expected exchange a month earlier had been delayed – without explaining the cause of the delay. One more sentence would have been nice, explaining e.g. that the buyer is stalling.

Emails you get from CapitalRise about loans

It's all very well having the above information available to you, but how do you know when it is there?

Emails.

CapitalRise's emails are sufficient. Including:

• An email when new loans are available with some vital statistics, such as forecast return, loan-to-value, the legal charge, type of loan, estimated term and how the borrower intends to repay. These are sufficient to help you decide whether to click to log in and read more.
• An email when the latest quarterly reports on your loans are available, with a telephone number and a reminder that you can contact them on live chat too if you have questions. However, I think that the body of the email itself should state clearly if there are loans that are suffering issues in your portfolio.
• You get an email when loans are repaid and your funds are now available.
• CapitalRise also sends out emails when there is a partial redemption. However, I think that the reason why it is just partial should be explained in the body of the email, even if that was clear from past updates, because a partial payment can mean that something has not gone quite according to plan.

Personal updates on your loans

It's easy to get more information on your loans. You are given a telephone number and can talk instantly on live chat about any queries you have. I always encourage lenders to ask questions when providers give you the opportunity, as it helps you better understand the specific types of loans you are in and generally to broaden your knowledge.

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Visit CapitalRise*.

Read the CapitalRise Review.