The ArchOver Review is written by one of 4thWay's specialists.
4thWay's ArchOver Review
A P2P offering we would like to like, but it doesn't trouble itself with providing much data to prospective lenders.
What ArchOver does
ArchOver primarily does UK business loans that are largely secured on whatever business assets are available, with a preference for the business's outstanding customer invoices.
ArchOver also does unsecured loans to give businesses an advance on tax credits, grants and tax reliefs, such as the research and development tax relief.
Loans are from £100,000 and up to £5 million. The average loan is around £250,000, although many borrowers have lots of ArchOver loans simultaneously.
Secured loans can last up to three years and unsecured loans for up to one year. Loans can be either repaid monthly, repaid at the end with interest paid regularly, or repaid at the end along with all the outstanding interest.
When did ArchOver start?
Established in 2014, lenders using ArchOver have technically lent £140 million to business borrowers. This figure is probably overstated due to a substantial proportion of loans being effectively extended by being renewed, but 4thWay is not provided with the full data.
What interesting or unique points does it have?
ArchOver's owner, Hampden Group, lends through the ArchOver lending platform. It has lent millions of pounds at a time. It continues to lend, although we have no up-to-date figure. This lending shows that it's willing to put its money where its mouth is. In ArchOver's case, I consider this one of the most promising signals.
ArchOver review: how good are its loans?
The types of business loans ArchOver approves require a lot of individual, human analysis, so the P2P lending platform can't rely to a big extent on credit reports and automated checks, in to approve large numbers of loans to provide safety for lenders.
What we know about the quality of the loans is limited. We know that ArchOver likes to see that the borrower is likely to be able to meet the monthly loan payments. Borrowers need to provide company accounts for the past two years as well as up-to-date management accounts (that's ongoing accounting reports used by management), which is good.
The latest information we have is that secured loans must be for less than 90% of the value of security (e.g. less than 90% of the outstanding amounts on customer invoices), which is reasonably standard for loans that are secured in this way.
The type of security usually seen on ArchOver loans is not as strong as real property security usually is, so lenders should certainly be prepared for some losses on a good proportion of the loans that turn bad, until ArchOver proves it can do better.
ArchOver appears to allow borrowers to keep borrowing, sometimes to repay previous loans. Many borrowers borrow 5, 10, 15, 20 or more times through ArchOver. While such repeat borrowing can be perfectly reasonable, it can also be the primary means, and easiest route, for a P2P lending company to hide problem debts. The problem is, we have next to no information on any of this.
Without sufficient openness from ArchOver, with detailed data, results and explanations, this is a huge gap in our knowledge of this platform. The rate of repeat borrowing or refinancing is so high that 4thWay – and lenders – really require a lot of information on it.
In recent years, ArchOver has shown signs of consolidating its loan types and removing features of its lending accounts that didn't work so well, which could improve the overall quality of the loans – and make them easier for lenders to understand.
Based on a (too) simple assessment of the total ever confirmed bad debts, total ever lent and total interest already earned by lenders, it seems more likely than not that the loans are good. But the key lending standards we are aware of are not supported by a great deal of other information, so I'm not able to form a strong opinion on their quality.
ArchOver during COVID-19
New lending was paused in pandemic, but ArchOver didn't need to use the government's furlough scheme to keep going.
Repeat lending, and renewing loans to the same borrowers, continued through pandemic and refinances appear to have been for larger amounts. However, we have no data to show what level of forbearance was offered to borrowers as a result of the pandemic lockdowns.
We have no substantial information upon which to assess its ongoing results during the pandemic.
How much experience do ArchOver's key people have?
ArchOver's lending practices are driven by viewing prospective borrowers from an accounting perspective, for which it has significant experience and training.
Its people have some prior experience in credit analysis or similar, although this is limited and not at a senior level. I would like to see more.
While we have previously met and interviewed some of the ArchOver team on several occasions, we haven't had a chance to interview the new key decision maker in recent times.
ArchOver review: lending processes
I'll start with the two niggles I have.
Strangely, ArchOver doesn't currently mention using credit reports in its processes, which I think they should. I have been unable to get confirmation that it does so.
Personally, I'd also prefer that they begin their research from a quantitative, analytical and impersonal approach from a distance. But, the way they have described it, they get into personalities and personal exchanges first. In my view, this gives the borrower more opportunity to use their charm and interpersonal skills to influence what ArchOver's people later see in hard numbers and facts.
Aside from missing credit reports and conducting soft analysis first, ArchOver's processes on the whole sound reasonable and competent. Experienced underwriters, accountants and credit committee members should be able to make good decisions if applying their skills to those processes and maintaining their discipline.
There are a lot of repeat themes in terms of the types of businesses ArchOver approves, indicating that it sticks to businesses it believes it understands.
ArchOver puts a great emphasis on monitoring borrower's cash flow, their accounts and security, on a monthly basis, with the cash being diverted to flow to an ArchOver-controlled bank account in the first instance.
ArchOver is big on covenants and negative pledges to reinforce the strength of the security, which, if ArchOver conducts its monitoring and bad-debt recovery properly, could have a substantial impact when recovering bad debt. These legal clauses can also reduce the risk that ArchOver is rolling over poorly-performing debt into new loans.
ArchOver's focus on the borrowers' ability to meet monthly payments and repay the loan is reassuring; for these kinds of loans, it should not be relying heavily on the borrowers' security.
How good are ArchOver's interest rates, bad debts and margin of safety?
Superficially, it appears that loan amounts that have turned bad are outweighed by interest that has already been paid to lenders – and that's even before taking into account any recoveries that ArchOver has made on those loans. If this is the case then the risk-reward balance has been good and is likely to remain so for the foreseeable future.
However, we have insufficient information to see whether problems are bubbling under the surface or to conduct an analysis of margin of safety.
Has ArchOver provided enough information to assess the risks?
By any objective measure we could devise, ArchOver doesn't provide as much information as many other P2P lending companies to either 4thWay or the public.
We have next to no information on repeat borrowing, little information on bad debts and bad-debt recoveries, and zero data on late loans or COVID-19 forbearance granted to borrowers. We have no data to see whether ArchOver grades borrowers and prices loans well, which would help us to see whether it understands its borrowers properly. We have insufficient information to measure the effectiveness of security offered by borrowers, or of the mitigation of risk inherent in recurring revenue at some borrowers.
We need more detailed data, results and explanations to fill a lot of these gaps.
Information provided to the public is also thin. ArchOver describes its processes on its website quite well, but lacks important supporting information on its people and its results. It provides very limited aggregated figures to show the current status of its outstanding loans and borrowers.
Oddly, we've been unable to find any outcomes statements on its website, even though ArchOver is required to publish these once per year by the financial regulator. These statements include some very basic information on ArchOver's performance.
A lot of the gaps in information are inexplicable. Reviews by lenders left on TrustPilot (after stripping out reviews from borrowers) have given ArchOver an average score of 4.4/5. Lenders appear to be happy with results over the past few years. (Not universally, but in the main.) I tend to think that ArchOver is being sloppy in providing information rather than deliberately trying to hide problems, but this is very much a feeling rather than based on hard facts – there just aren't enough hard facts.
The bottom line is that I believe neither 4thWay or prospective individual lenders have sufficient information to assess the risks and whether the interest rates sufficiently cover the risks.
Is ArchOver profitable?
ArchOver isn't yet profitable. However, it's owned by a much larger and profitable business, Hampden Group, which provides insurance services. ArchOver appears to still be well supported by its parent, both financially and with services.
After cost cutting in 2019, losses were halved in 2020 to half a million pounds. Meanwhile, revenue was down just one-third, due to the pandemic.
Financially, ArchOver is very sound. Its accounts are audited.
Is ArchOver a good investment?
I would like to think that ArchOver is a good investment and I could certainly believe it, but it's not possible to say so with great confidence at this stage.
What is ArchOver's minimum lending amount and how many loans can I lend in?
The minimum lending amount is fairly high at £1,000 per loan, although you can lend from £250 with auto-lend.
The auto-lend target rate is 7.4%. Unusually, this rate takes into account cash drag. That's when you earn no interest on money that is sitting in your ArchOver account, waiting to be lent or re-lent.
The auto-lend feature is available through a series of accounts called Investment Plans. With these, lenders lend in the first 10 secured projects that appear on the platform after the plan draws down. No more than 10% of your money is lent to any one borrower business. Very importantly, that's per borrower and not per loan, as there are a lot of repeat and additional loans and refinances. Each Investment Plan has a target term of 26 months.
However, lenders should aim to either spread their money across far more than ten borrowers or carefully limit the amount you lend through ArchOver from your overall investment pot. I think it's reasonable for lenders to aim to lend less than 1%-2% of your pot of money to any single borrower on ArchOver.
It's possible that a reasonable proportion of loans will repay far earlier than planned, meaning you'll need to keep up some effort to find a home for your money that earns interest.
Does ArchOver have an IFISA?
ArchOver's lending accounts are available as IFISAs.
Can I sell ArchOver loans to exit early?
No. But do remember that selling before borrowers naturally repay is a luxury item that doesn't always work anyway. Good lending practice is to assume that you will need to lend until the borrowers repay naturally.
What more do I need to know?
Marketing claims have at times been rather bold or over the top.
For example, in response to an online lender review, ArchOver wrote that it took 3.5 years to get the first default and that “no other P2P platform can boast this”. Although it was nearly true, by just a few months, there were other P2P lending companies that could claim better. And some can still say the same over an even longer period.
It has also previously stated that it's the safest of the business loans P2P lending websites, which is a very big claim to make – and one we've heard before.
ArchOver review: key details of its lending account
4thWay PLUS Rating
Interest rate after bad debt
Here we show the P2P lending site's own estimate
4thWay Risk Score
Lower Risk Scores are better. How is this different to the 4thWay PLUS Rating?
ArchOver Quick Expert Review: a P2P offering we would like to like, but it doesn't trouble itself with providing much data to prospective lenders
ArchOver primarily does UK business loans that are largely secured on whatever business assets are available…Read the full review here
Independent opinion: the opinions expressed are those of the author(s) and not held by 4thWay. 4thWay is not regulated by the ESMA or the FCA, and does not provide personalised advice. The material is for general information and education purposes only and not intended to incite you to lend.
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