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Growth Street Review

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By on 7 August, 2019 | Read more by this author

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

Growth Street Review

A professional company with solid defences against losses

When did Growth Street start?

Established in 2014 with total lent of £48 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 can rapidly see 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 large reserve fund to cover expected bad debts.

How good are its loans?

Beneath Growth Street's highly satisfactory results so far, 4thWay is waiting to talk to Growth Street's new key rainmaker in its lending (credit) team to see what its minimum standards are going to be in future, so that we can assess more closely how good its underlying loans are.

The data Growth Street has sent us on its security is now out-of-date, although we are expecting more regular updates to begin imminently. The last data on security that we received shows that loans are typically for less than half of the security value, which is good for these loans.

Growth Street's expectation is for around half of bad debts to be recovered, which is substantial and also highly plausible for these loans.

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

Growth Street has the key skills we'd expect to see. There's a new key lending decision maker who started in summer 2019. We're yet to interview him and conduct follow-up background research, although based on previous hires and Growth Street's cash pile for growth and hiring my expectation is that he'll have sufficient know-how.

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.

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

It's begun to see results from its efforts to recover some of the modest amount of bad debt suffered so far, which is encouraging about its bad-debt recovery processes.

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

Growth Street* has demonstrated good selection of business borrowers. Its record compares well to both similar and dissimilar business lending, with just two-and-a-half loans out of 100 suffering trouble, before recoveries of bad debt. Bad debts have been paid for by the reserve fund, almost entirely out of borrower contributions to the fund. This leaves a large amount of additional founder money still in the fund.

Growth Street approves some very large loans. If some of them when bad they could, in theory, overwhelm the reserve fund and even lead to losses. However, its ability to spot problems early and manage the size of the overdraft-like facility downwards, as well as other innovative and standard procedures, reassures that the likelihood of this happening is low.

I think interest rates are good for the risks involved, with a large safety margin in the event of severe economic disasters.

Has Growth Street provided enough information to assess the risks?

Growth Street has been slow to get data and information to us in recent times, but it's started taking major steps to rectify that. It is usually very transparent, giving us access to its key people, and also to its data, which enables us to assess every detail 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 so far.

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 has an IFISA. Unusually, it is a different lending account, rather than the same one wrapped in ISA. You can read about it here.

What more do I need to know?

The previous version of this review incorrectly stated: “When a loan goes bad, Growth Street has typically recovered over half the amount back from the borrower.”

Correction: Growth Street has not yet achieved that, but expects to do so. The average bad debt has only been in recovery proceedings for about six months. Early results are promising and Growth Street's expectations are reasonable, but more time is needed to confirm them.

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 3
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
3/10

Description: £48 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 £48 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 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 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 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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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.

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