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Growth Street: Is Its Reserve Fund In Trouble?

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By on 31 August, 2018 | Read more by this author

4thWay user David Bradshaw had this question for us about Growth Street*:

“Firstly, I’d just like to compliment you on your excellent website as it’s been a helpful resource for me as I’m sure many others before me, on starting with P2P investments.

I now have investments with most of the major P2P platforms, and am looking a adding into Growth Street, which I have yet to use.

“However, I had a look at their provision fund statistics and it seems that the amounts required to cover defaults over the last two years (£729k), is far greater than the provision fund contributions they receive from borrowers (£571k), so in effect the losses have been covered by money put in by the founders (£160k).

This worries me as being unsustainable unless either a) the total loan turnover is now such that the fund income is now sufficient, or b) they have tightened up the lending risk criteria and lowered the default risk. But I cannot see whether either of these are now anticipated to improve the situation from your risk rating.

Would anyone be able to enlighten me on whether you see this as an ongoing risk, or just an early years ‘blip’ and therefore likely to correct itself ?

4thWay's response

Hi David

Thanks for asking this; it's a good question.

Claims on the reserve fund due to bad debt been around £730,000.

The borrower contributions to the reserve fund from borrower fees and the recoveries of bad debt that were made after the loans were transferred to the reserve fund have been around £670,000 (after costs in administering the fund).

So, as you point out, the claims have been around £60,000 more than the amounts paid into the fund from borrowers' contributions.

The difference has been pre-funded by founders, who have contributed and segregated an additional £1,150,000 of their own money to the reserve fund. This is far more than the £60,000 difference.

Our experts monitor the situation regularly, but at present, with the founders' large contribution, it means that there is a vast, funded pot of money of over £1,000,000 that should protect lenders for a long time.

And that's still going to be the case even if the founders do not contribute any more and the maturing loan book does not see the improved results that Growth Street expects, or if more recoveries aren't completed after the reserve fund pays for bad debts. Because at the current rate it would take over a decade for the pot to be worn down, even assuming Growth Street continues to grow pretty fast.

Looking at this another way, a more important defence against losses than the reserve fund is the interest lenders earn. Bad debt so far has been around 2.7% and interest rates have massively exceeded that, being for between 5% and 6.5%. If there was no reserve fund, lender rates would likely be one percentage point higher still, offering additional cover against losses.

If the situation ever deteriorates at Growth Street, one of 4thWay's experts will update Growth Street's entry in the comparison table along with its review, and we will send you notice of it in our newsletter.

Visit Growth Street*.

Read 4thWay's expert Growth Street review.

Independent opinion: the opinions expressed are those of the author 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.

All the experts and journalists 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. We already show dozens of P2P lending companies in our accurate comparison tables and we keep adding more as soon as they provide us with enough details. We receive compensation from Growth Street 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.

We have not risk-rated either of those bonds, but we expect that their structure makes them more risky, particularly because you’re lending to just one borrower.

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Why are Wellesley’s interest rates different?

Wellesley’s P2P lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Wellesley’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

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.

We have not risk-rated either of those bonds, but we expect that their structure makes them more risky, particularly because you’re lending to just one borrower.

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Why are Wellesley’s interest rates different?

Wellesley’s P2P lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Wellesley’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

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.

We have not risk-rated either of those bonds, but we expect that their structure makes them more risky, particularly because you’re lending to just one borrower.

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