Here is a Quick Expert Crowd2Fund Review from one of our experts.
Needs to provide more information to prove its inexperienced team are capable of maintaining good results into the future.
When did Crowd2Fund start?
Crowd2Fund*, which started small business peer-to-peer lending in 2015, has now lent £36 million.
What interesting or unique points does Crowd2Fund have?
You can lend in “Crowd2Fund Loans” to receive monthly loan and interest repayments. You can also lend through “Crowd2Fund Bonds”, whereby you receive interest payments each month, but get your actual loan back at the end.
Crowd2Fund also offers you “Revenue Loans”, which means the borrower pays back more or less each month, based on how much money the business borrower is making. Finally, Crowd2Fund offers “Venture Debt”, which are more speculative loans to early-stage businesses. Interest rates rise with risk, in this order: Loans, Bonds, Revenue Loans and Venture Debt.
Unusually, Crowd2Fund offers its service as an IFISA only. It doesn't offer an ordinary P2P lending account too. The exception is when you lend more than the IFISA limit (currently £20,000) in one year. Lending over the limit will be outside of the IFISA.
How good are its loans?
Crowd2Fund says it attracts quality borrowers by actively contacting healthy businesses and encouraging them to borrow to fund new projects, i.e. it doesn’t do loans to help businesses struggling to cover costs. That said, 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 indicates that it has recovered half of all bad debts so far, which is a pleasing recovery rate for these kinds of loans, but it doesn't provide enough details for me to assess whether this tells the whole picture, or whether this early success in recoveries will continue in the future.
How much experience do Crowd2Fund's key people have?
While I had great hopes of an upwards trajectory for this team, I regret that it hasn't materialised yet. The information I have is limited and a little contradictory, but I would say that the key people they have in-house have no prior experience and training. I urge Crowd2Fund to provide evidence and open its staff up to interviews if my assessment is incorrect.
Crowd2Fund does have an external advisor, Navdeep Arora, who has more skills and experience. He helped Crowd2Fund set up its lending policies in the early days and that certainly ensured that they started on much firmer footing.
The question remains unanswered about how much of his skills and knowledge lingers in the business to show itself in their results. I hope he's still being used to the full, but, when I contacted him to ask about his role, and specifically the number of hours he does for Crowd2Fund, he merely said he was an advisor.
There are discrepancies between who Crowd2Fund lists as staff on its website and other sources of information; it appears to be out-of-date and job titles are inappropriate. On asking Crowd2Fund's CEO to discuss some of the key staff changes, I have received no response so far.
Crowd2Fund review: lending processes
The lending processes and lending criteria described to us for Crowd2Fund Loans and Crowd2Fund Bonds are highly appropriate for this kind of lending. The fixed process for stepping up actions on late borrowers are sensible and timely.
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, with borrower cash generally needing to be 1.25 times the size of the monthly loan payments. The business borrowers need at least two years' trading history.
Standards for Revenue Loans and Venture Debt are not as strict, and I think those loans are for expert investors to lend in only.
What Crowd2Fund could very much do with is a highly experienced person to make the final decision on approving loans.
How good are Crowd2Fund's interest rates, bad debts and margin of safety?
Crowd2Fund doesn't provide enough information for us to understand its results in a way that I feel confident about them. We also don't receive enough data to check for hidden dangers, such as “can-kicking”, which is when a P2P lending site re-arranges existing loans to make it easier for distressed borrowers to appear sound – for a while.
From limited data available, which requires a lot of interpretation on my part, it appears that Crowd2Fund* lenders who have spread their money very widely can strongly expect to be in profit so far, although it appears that results might have significantly worsened during 2019.
All that said, I believe that on balance over the medium and long run Crowd2Fund Loans and Bonds will probably remain profitable most of the time for the average lender, although I cannot say just how profitable.
At this stage, I don't have the data and information to weigh up the risk-reward balance for Revenue Loans and Venture Debt, which are much rarer types of loans.
Has Crowd2Fund provided enough information to assess the risks?
No. It needs to provide a lot more information to demonstrate that its junior team is capable of approving loans, setting interest rates and making gradual improvements. That data is also needed for 4thWay to conduct a detailed assessment, especially for a 4thWay PLUS Rating. While it looked very promisingly like it was going to provide all that data, this disclosure has now slipped for over a year.
Crowd2Fund lenders might 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 is 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 doesn't have to file full accounts at Companies House, the UK's registrar for businesses. However, from the limited information available, it's very likely that Crowd2Fund is not yet profitable. But it's good at selling itself to investors, who have bought over £4 million-worth of shares. That salespersonship could be what leads to it eventually becoming profitable. Still, its future is not yet clear to me.
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.
Does Crowd2Fund have an IFISA?
Crowd2Fund's lending account is available as an IFISA only.
What more do I need to know?
It's inappropriate that Crowd2Fund refers to its auto-lending feature, called “Smart-Invest”, as a “savings plan”. Lending is an investment, not savings.
Crowd2Fund: key details of its IFISA 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?
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 £36 million. You can…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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