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Growth Street Review

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By on 7 February, 2020 | Read more by this author

It's a hot time in IFISA season with several peer-to-peer lending companies offering highly attractive cashback of up to £4,000 or 5% (even up to 200% if you're just lending small amounts!) Read more.

Here's the Growth Street Review from one of our specialists. (You can see all the reviews in our comparison tables.)

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

A professional company with solid defences against losses

Growth Street Review: their best-rated product

Growth Street Review with a lending account earning a Fair 1/3 PLUS Rating

This account is currently paying 5.3% interest after bad debts.

Read about the 4thWay PLUS Ratings, compare more peer-to-peer lending accounts or visit Growth Street*.

When did Growth Street start?

Established in 2014 with total lent of £52 million.

What interesting or unique points does Growth Street have?

Growth Street's loans are similar to bank overdrafts to businesses: flexible lending facilities that borrowers can draw more on or pay down, as needed. Unlike overdrafts, these facilities are also secured for lenders' protection, mostly against the money owed to the business borrowers by their customers.

Growth Street* is highly innovative. It integrates with its business borrowers' monthly accounting systems, so that it has the potential to notice if the borrower's financial situation is starting to go downhill. It can then require the borrower to pay debt off much faster, before trouble hits – and while the borrower can still afford to make large payments. It can also divert payments from the business borrowers' customers directly to Growth Street.

Growth Street has a reserve fund that easily covers expected bad debts on most loans, although some loans are unusually large and not easily covered.

How good are its loans?

Growth Street's loans have mostly been satisfactory. The number of loans that turn bad is sufficiently low and within expectations for this kind of lending.

We don't receive data from Growth Street on security in a way that makes it easy to measure its quality. But that is at least partly due to the nature of overdraft-like facilities: the security often changes regularly, making it difficult to pin down.

Still, security is intended to reduce bad debts and so we can see its impact by using Growth Street's actual results. After loans turn bad, Growth Street* has typically recovered around 45% of a bad debt when given at least eight months to do so. This is reasonably satisfactory for these kinds of loans. It might improve a little bit further as more recoveries are made.

The quality of its loans has recently been overshadowed by the size of them. Some loans are very large, so that if just a few turn bad they could lead to far lower returns. In a worst-case scenario, they might also lead to temporary losses, although these should be offset by interest earned over a few years – whether the interest is earned before or after the loans turn bad.

Indeed, Growth Street recently chose to use £3 million of its own money to cover just two bad debts, so that it did not overwhelm both the reserve fund (worth £1.2 million at the time) as well as a whole year's lending interest. Growth Street has now taken some steps to reduce the risks, including halving the maximum loan size, but they still remain a potential risk for lenders.

How much experience do Growth Street's key people have?

Growth Street has the key skills we'd expect to see, but they are learning that the specific type of lending they do, and the intricate defences they lay to protect lenders, requires more finetuning. Importantly, they are accepting this and making changes, which is not always the response we see at peer-to-peer lending providers.

I am still to interview the new key lending decision maker and conduct background checks. I hope to do so in March 2020.

Growth Street review: lending processes

Growth Street* extensively uses predictive technology, fraud databases, integrated accounting, and financial and credit history checks in order to assess a borrower for a loan as well as to set interest rates. It's an impressive set of tools that will become more powerful as time goes by. Growth Street can measure its results against more completed loans and use the information provided by those tools to improve results further.

The borrowers' situations are constantly monitored and Growth Street can amend borrower interest rates with just 30 days' notice.

It's bad-debt recovery processes have started to pay off, as I said earlier, with about 45% of bad debt being recovered.

It's good to see that this P2P lending platform reacts quickly to potential bad debts as well as actual bad debts. This hugely increases the chances of getting lenders some or all of their money back and shows self-confidence from the platform.

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

Growth Street* has demonstrated good selection of business borrowers. For overdraft-like lending often backed by invoices, its record of nine out of every 100 borrowers being classed as in default at some point is not surprising.

After two very large loans went bad, Growth Street is now looking into the interest rates it charges borrowers. I hope to see it raise rates on some loans so that it can either pay more into the reserve fund or more to lenders, to cover the risk of potentially large bad debts.

If it wasn't for the large loans, Growth Street's lending account would have a 3/3 “Exceptional” 4thWay PLUS Rating instead of a 1/3 Rating. This is because, large loans aside, the interest rates are good for the risks involved, with a big safety margin in the event of severe economic disasters.

The lower rating of 1/3 reflects the additional possibility of making losses in some years from an unfortunate number of large loans going bad simultaneously.

Has Growth Street provided enough information to assess the risks?

Growth Street went through a patch last year where it was too slow to provide 4thWay with data, but in 2020 it's now back on track. It's usually very transparent, if a little slow, at giving us access to its key people, and also to its data, which enables us to assess most details of its business using risk modelling and investing techniques.

Is Growth Street profitable?

Growth Street, like most P2P lending sites in this new industry, is not yet profitable. That said, we think it is technically agile, and it has a unique offer that could place it well for continued success. It has plans and funds in place for a smooth wind-down in the event that it does close its doors. It received an additional £17.5 million from investors in 2019 (£3 million of which was diverted to pay off the large bad debts).

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

Lenders’ money is automatically spread across all outstanding loans, which greatly reduces the risks.

The minimum lending amount is £10, which is spread across all live loans and redistributed daily as new loans are made. I believe lenders will be sufficiently diversified across enough loans almost immediately.

Does Growth Street have an IFISA?

Growth Street's IFISA is currently paused to new lending. This is because its structure is such that it got caught in new rules laid down by the UK's financial regulator related to non peer-to-peer lending. We'll let you know when Growth Street has changed its structure and reintroduced its IFISA.

Growth Street's regular P2P lending account is not affected.

Visit Growth Street*.

Growth Street has a cashback deal for new and existing lenders of up to £2,000 cashback. Read about it here.

Growth Street: key details of its Classic Account

4thWay PLUS Rating
4thWay PLUS Rating 1
Interest rate after bad debt
5.3%

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

4thWay Risk Score
6/10

Description: £52 m since 2014 in secured business overdrafts, with large reserve fund, auto-lend, auto-diversification, & exit within 30 days. £2,000/5% CASHBACK AVAILABLE - read the Quick Expert Review below

Minimum lending amount
£10
Exit fees - if you sell loans before borrowers fully repay
No

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

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

Yes

Loan size compared to security value
45% (approx avg); 85% (max)
Reserve fund size as % of outstanding loans
3.5%
Company/directors lend alongside you/first loss
Yes, founders/investors top up bad-debt fund to up to 6% of outstanding loans
Growth Street Quick Expert Review: a professional company with solid defences against losses

Established in 2014 with total lent of £52 million. Growth Street's loans are similar to…

Read the full review here

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 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. 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.

 

 

 

 

 

 

 

 

9 responses to “Growth Street Review”

  1. Chris says:

    I mostly agree with this review.
    However, I am seeing 2-4 days lag between a loan order and the actual loan being taken up.
    As this happens for every loan, every month, this lag looks like it will reduce returns by 7-15% to approx 5.5% to 6%, still not too bad, but not the advertised 6.5%.

    • Neil Faulkner says:

      Thanks for pointing this out, Chris, because it would mean that, with the money being at risk for about 11 months a year, over that yearly period you would earn, as you say, approx 6% as opposed to 6.5%.

      During the (cumulative) month of the year when the money is not on loan and earning interest it is also not at risk. So while the annual return on your money is around 6% the annualised lending return when your money is at risk remains 6.5%.

      We have been wondering since 4thWay was founded in 2014 how on the website (in our comparison tables and reports) to clearly show the impact of idle money on both decreasing returns and eliminating risks. (We’re open to suggestions on that.)

      • Neil Faulkner says:

        …In our detailed comparison tables (you get to that by going to our Compare page, checking the boxes on the right next to the P2P lending opportunities that interest you, and then clicking the “Get more details” button at the top of the page), you can open up details about “idle money” under the section “Costs and Account Management > Receiving interest and payments”. According to Growth Street, on average just 3% of investor money is idle, on average, at any one time. This would indicate that the average lag is significantly less than 2-4 days.

        However, I will ask Growth Street to clarify whether money that is sitting between a loan order and the actual loan being taken up is included in this idle money figure. If it is, and if your average lag is typical across the board, idle money should be approx 10%.

        I would also like to clarify with them that it works the way you say. It would be very strange if the overdraft facilities that roll into the next month stop paying you interest for 2-4 days every month.

  2. Chris says:

    I’ve discovered a second issue – early repayment of loans.
    Of my first batch of loans only 1 ran for the full 30 days, the average term, taking into account early re-payment is just 19 days, which when adding the lending lag means returns could be much lower still.
    Disappointed, and hoping that this is the exception, else will have to look elsewhere.

    • Neil Faulkner says:

      Thanks for taking the time to share that, Chris!

    • Neil Faulkner says:

      Hi Chris, thanks for sharing that with everyone.

      Growth Street just told me that you have been a little unlucky, because most lend orders are matched within 24 hours.

      Growth Street publishes statistics on lending speeds that you can see if you’re an existing lender on this page:

  3. Shady Dave says:

    My experience with Growth Street has been very good so far – my loan orders have all been matched on the same day or at least within 24 hours – much quicker than with Zopa for example where it has taken anything up to 12 days to be lent out on some occasions. I agree though that it would be better to be able to see what the demand from borrowers is, what the queue for investors is and where your loan offer is in that queue at any given time so that investors can make an informed decision about when is the best time to deposit money. RateSetter does this and I find that very helpful!

  4. Tommy says:

    Is the £1million approx money that Growth Street founders put into the LLP non deductable by them? Even in the event Growth Street has some financial difficulty in the future?
    Thanks

    • Neil Faulkner says:

      The money in the reserve fund, including founder contributions, is ringfenced. It cannot be used for any purpose except to cover bad debts.

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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.

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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 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 Orchard’s interest rates different?

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

This is because we calculate Orchard’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.

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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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