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Crowd2Fund Review

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By on 4 May, 2022 | Read more by this author

Here's the Crowd2Fund Review from one of our specialists.

Crowd2Fund Logo, used in 4thWay's Crowd2Fund review4thWay's Quick Expert Crowd2Fund Review

Good to see small business lending where lenders can choose their own loans, but it needs to provide more information to offset its inexperienced team.

What is Crowd2Fund?

Crowd2Fund* does small business peer-to-peer lending.

When did Crowd2Fund start?

Crowd2Fund started peer-to-peer lending in 2015 and has now lent £40 million.

What interesting or unique points does Crowd2Fund have?

Crowd2Fund is a rare small business lending P2P company, in that lenders still can, and usually do, choose their own loans. In so doing, lenders intend to achieve better than average results compared to others using Crowd2Fund.

You can lend in loans of 1-5 years, receiving regular loan and interest repayments. Or you can lend in loans where you receive regular interest and your money back at the end.

Crowd2Fund also offers you “Revenue Loans”, which means the business borrower pays back more or less each month, based on how much money it's making.

Crowd2Fund offers equity investing, which means buying shares in small businesses. These investments are not covered by 4thWay.

Since a 4thWay specialist last updated the Crowd2Fund Review, it seems that it has stopped it's so-called “venture debt” loans.

Crowd2Fund review: How good are its loans?

Crowd2Fund actively contacts healthy businesses and encourages them to borrow to fund new projects, i.e. it doesn’t do loans to help businesses that need help to cover costs for a while. However, this is not exclusively the case. A review of some of its individual loans appears to show that some borrowers do borrow to cover costs (“working capital”) and to consolidate existing debts.

Crowd2Fund said late last year that it's had very few, if any, late payments on loans from its new lending processes that started 12 months earlier. However, the exact same was also true over the first 12 months when Crowd2Fund started in 2015.

Bad debts tend to arise later in these loans. We'll need more time for those newer loans to age in order to see if its performance has improved, and Crowd2Fund will also have to approve more loans to confirm the pattern.

Crowd2Fund recently claimed a 27% recovery rate on bad debt. That's a perfectly reasonable recovery rate for these kinds of loans. But the term “recovery rate” is ambiguous, as it's used differently by different companies, and Crowd2Fund hasn't explained what it means to us.

Plus, we don’t know if Crowd2Fund is recognising all bad debts or merely those with better prospects of some recovery. We don't know if the recovery rate will fall, as and when it recognises more bad debts as write-offs. It just doesn’t provide sufficient data for us to assess these aspects, and therefore its stated recovery rate is unreliable.

With the information we have, I think its loans are probably reasonable. But, overall, I would be more comfortable answering the question “how good are its loans” if we had a lot more information.

Crowd2Fund during COVID-19

Crowd2Fund temporarily stopped new lending at the start of the pandemic, but restarted again the same year.

It paused its market where lenders can sell existing loans early to other lenders. This market remains paused. This might indicate a desire from far more existing lenders to sell than to buy (which isn't necessarily justified). Or it might be that Crowd2Fund is unable to fairly price many existing loans at this stage, due to increased uncertainty as to whether the borrower will repay in full.

From the fairly limited information we have, it seems likely its loans have held up well so far from the impact of the pandemic on the economy. I expect that some additional bad debts will show themselves through 2022, as some business borrowers suffer from the withdrawal of government-backed pandemic support.

How much experience do Crowd2Fund's key people have?

Crowd2Fund has an external advisor, Navdeep Arora, who has some skills and experience.

Starting last year, it has had the assistance of another freelancer, Rupert Mindelsohn, who has a lot of the sorts of training and experience that we want to see for these kinds of loans. Crowd2Fund didn't provide any evidence of the extent of his involvement, despite our requests, so we should assume a modest impact on lending performance.

Even so, Mindelsohn is a very welcome addition to an in-house team that, we are told, has no prior experience or training. Aside from the CEO, no-one involved in lending processes has been at the company for more than 2.5 years.

What Crowd2Fund could very much do with is a highly experienced person to help make final decisions on approving loans.

The last we were told, Crowd2Fund doesn't do the kind of bank-like risk modelling that we hope to see for these kinds of loans, although admittedly such modelling is not easy until it's approved thousands more loans.

4thWay has previously interviewed the CEO, but we haven't been granted access to interview other key people on its lending team or in its bad-debt collections area.

There are often discrepancies between who Crowd2Fund lists as staff on its website and other sources of information. It often appears to be out-of-date and job titles are inappropriate. 4thWay has never received any answers to our queries about these issues.

Crowd2Fund review: lending processes

The lending processes and lending criteria described to us are highly appropriate for this kind of lending.

On top of the basic credit and fraud checks that we'd expect to see, the focus is on cash flow to and from the business borrower, with borrower cash generally needing to be 1.25 times the size of the monthly loan payments. This is highly appropriate for these kinds of loans.

The business borrowers need at least two years' trading history, which is also a good minimum to have.

Standards for Revenue Loans are not as strict, and I think those loans are probably for expert investors to lend in only.

The fixed process for stepping up actions on late borrowers are sensible and timely, although we don't have the evidence that these plans are being implemented in practice. It's also likely that, since the pandemic, these practices have been largely relaxed so as not to be harsh on borrowers.

How good are Crowd2Fund's interest rates, bad debts and margin of safety?

Lenders typically appear to have made decent returns, possibly averaging around 6% since Crowd2Fund started in 2014. Piecing together all available information, it seems most probable that most Crowd2Fund* lenders have made money, if they have made good effort to spread across many loans.

While bad-debt levels seem reasonable, we don't know if Crowd2Fund has been kicking problem debts down the road. This is when a P2P lending site either extends bad loans, doesn't recognise them as bad debts, or re-arranges existing loans to make it easier for distressed borrowers to appear sound – for a while.

It's likely that bad debts will rise on existing loans in 2022 and/or 2023 as they mature and as delayed pandemic bad debts filter through, which will eat into profits for existing lenders. Newer loans won't be affected.

At this stage, I don't have the data and information to weigh up the risk-reward balance for Revenue Loans even in the superficial way that I have been able to do for the other loans.

Has Crowd2Fund provided enough information to assess the risks?

Not really. Crowd2Fund appears to try to do good statistics, but its public statistics and data are still not clear or detailed enough.

Crowd2Fund doesn’t supply data to 4thWay and it hasn’t answered our questions on performance.

In preparation for updating the Crowd2Fund Review, it told us that it would update its blog on its performance instead of responding to 4thWay. It did this, but the blog, and its statistics on its website, just aren’t quite up to scratch. For example, one missing link is that we’re unable to see the trail of outstanding loans that are overdue by at least 30 days. This is one of the ways to see those loans' prospects and assess Crowd2Fund’s efforts to recover them. It also tells us how fast it recognises them as bad debts.

With a junior, in-house team, it needs to provide a lot more information to demonstrate and prove its past performance. It contacted us in early 2022 and showed renewed interest, but it looks like it still doesn't have the resources to provide the level of information we need.

Crowd2Fund lenders might also rightly be disappointed that they are not handed more details on a plate when they are selecting individual loans for themselves. For example, Crowd2Fund could explain why a borrower can cope, if its figures show that it has a lot of outstanding debt.

It's very useful, though, that lenders can ask prospective borrowers questions through the Crowd2Fund platform, and all lenders get to see the answers.

Is Crowd2Fund profitable?

Crowd2Fund has not yet been profitable. It made an annual loss of nearly £800,000 in the year to April 2021 and it made slightly larger losses in the prior two years.

While losses are normal and even expected for P2P lending startups, that doesn't tell the whole picture.

Crowd2Fund's revenue had fallen from £750,000 to £530,000 in the 12 months to April 2020. In the following 12 months to April 2021, Crowd2Fund's revenue was a mere £90,000. While most P2P lending companies have seen harder times during the pandemic, I think this is particularly extreme.

Costs and expenses are down by half in 2022 to under £900,000 from 2019's high of nearly £1.8 million. But that's still 10 times more than its latest reported revenue.

Previously, as far as I can see, revenue had reached a peak of about 40% of costs and expenses, which still doesn't seem good for an eight-year-old P2P lending company. I hope it's able to maintain its lower costs while rapidly boosting revenue in the coming months.

Crowd2Fund has sold over £4 million of its shares to its investors over many prior years. I'm sure it will need to sell more to keep going until it becomes profitable.

Crowd2Fund's independent auditors, Shipley's LLC, didn't take exception to Crowd2Fund continuing to produce accounts as a going concern. The bottom line is that it expects to be able to keep going till at least April 2023.

With its super low revenue, however, Crowd2Fund surely has a lot to prove over the course of this year.

What can you tell me about Crowd2Fund's cybersecurity?

Security provider Sucuri has done a soft probe of Crowd2Fund's website for 4thWay. Its security compares very well to other P2P lending companies.

Crowd2Fund gets tested by a security expert every year in so-called penetration tests. The website looks free of malware and it's marked as clean by Sucuri, Google Sage Browsing, McAfee, PhishTank, Opera and Yandex.

It's a secure website with a valid security certificate. That helps to protect you when you supply your personal data. It automatically directs you to a secure version of its site.

A separate service offering a modern payment system manages money in and out, and looks for fraud.

Is Crowd2Fund a good investment?

With the information, data and access being quite a lot less than I want, Crowd2Fund is a good investment for people who have a higher appetite for risk, want to pick their own loans, and take more chances using a small proportion of their money.

What is Crowd2Fund's minimum lending amount and how many loans can I lend in?

You can lend as little as 10p per loan.

If you want Crowd2Fund to automatically lend your money across different borrowers, the minimum is £250. Drip your money in, lending regularly over a large number of months, to ensure your money is lent across lots of borrowers.

Crowd2Fund will then ensure that you only lend once to the same borrower, at any one time.

Since we last updated the Crowd2Fund Review, this peer-to-peer lending company has added some interesting features to its auto-lend. You can now automatically lend new money on a monthly basis. You can also increase the rates you want to lend at (which at least loosely correlates with greater risk) or decrease them.

Crowd2Fund's CEO said that lenders should absolutely be lending in more than 100 loans to spread the risks sufficiently. For these kinds of loans, 4thWay estimates you should be trying to reach 180 loans if possible to further minimise the risk of random bad luck eating away at your lending profits.

You need to take a long time to drip your money in to try to be lending in as many as possible.

Does Crowd2Fund have an IFISA?

Crowd2Fund's lending account is primarily sold as an IFISA.

Crowd2Fund tells us that it offers an ordinary P2P lending account in addition to the IFISA, although my team and I couldn't figure out how to open an ordinary account through its site. We suspect we're being confused by some popups. Crowd2Fund didn't respond to our request for further information on how to open an ordinary account.

However, we know that if you put in more cash than your IFISA limit, the excess lending will be outside of the IFISA.

Can I sell Crowd2Fund loans to exit early?

You can sell Crowd2Fund loans to other lenders for a 1% fee, although currently the market to sell loans is paused due to the pandemic.

Lenders continue to receive their repayments and interest from the borrowers and can exit naturally in this way.

Visit Crowd2Fund*.

If you've found the Crowd2Fund Review educational, please check out our other reviews.

Crowd2Fund: key details of its IFISA Account

4thWay PLUS Rating
4thWay Unrated
Interest rate after bad debt
8.12%

Here we show the P2P lending site's own estimate
(or 4thWay's if theirs are not appropriate)

4thWay Risk Score
N/A

Description: £40 m since 2015 in business loans, including revenue loans, with auto-lend & early exit. Only available in an IFISA

Minimum lending amount
£0.10
Exit fees - if you sell loans before borrowers fully repay
1%

Early exit is not guaranteed. Usually, other lenders need to buy your loans

Do you get all your money back if you exit early?

No, you could get more or less

Loan size compared to security value
N/A
Reserve fund size as % of outstanding loans
Company/directors lend alongside you/first loss
No
Crowd2Fund Quick Expert Review: needs to provide more information to prove its inexperienced team are capable of maintaining good results into the future

Crowd2Fund, which started small business peer-to-peer lending in 2015, has now lent £40 million. You can…

Read the full review here

Independent opinion: 4thWay will help you to identify your options and narrow down your choices. We suggest what you could do, but we won't tell you what to do or where to lend; the decision is yours. We are responsible for the accuracy and quality of the information we provide, but not for any decision you make based on it. The material is for general information and education purposes only.

We are not financial advisors, which means that we don't offer advice or recommendations based on your circumstances and goals.

The opinions expressed are those of the author(s) and not held by 4thWay. 4thWay is not regulated by the ESMA or the FCA. All the specialists and researchers who conduct research and write articles for 4thWay are subject to 4thWay's Editorial Code of Practice. For more, please see 4thWay's terms and conditions.

*Commission and impartial research: our service is free to you. 4thWay shows dozens of P2P lending accounts in our accurate comparison tables and we add new ones as they make it through our listing process. We receive compensation from Crowd2Fund and other P2P lending companies not mentioned above when you click through from our website and open accounts with them. We vigorously ensure that this doesn't affect our editorial independence. Read How we earn money fairly with your help.

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Important information before you visit Wellesley & Co.

Wellesley & Co. is primarily a P2P lending website.

But, when you visit the Wellesley website, you’ll see that it also offers two “bonds”, one of which is available as an ISA.

Unlike its P2P lending service, neither of these bonds allows you to lend directly to 100+ borrowers.

Instead, you lend to Wellesley and it lends to other borrowers.

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Important information before you visit Wellesley & Co.

Wellesley & Co. is primarily a P2P lending website.

But, when you visit the Wellesley website, you’ll see that it also offers “bonds”. Unlike its P2P lending service, its bonds don’t allow you to lend directly to 100+ borrowers.

Instead, you lend to Wellesley and it lends to other borrowers.

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