Which Founders Lend Through Their Own P2P Lending Sites?
One of the two first questions* that Leigh Baker, 4thWay's chief risk modeller, asks senior people in the industry is: “How much have you lent through your own P2P lending site?”
What particularly interests us is not just the amount that the founders and other key people have lent their own cash, but also if they lend consistently across a lot of loans.
Its a small shortlist
While several founders say that they do some lending, there are just two that have demonstrated a real commitment to doing so:
The founders of HNW Lending** have consistently lent over half a million pounds, which is spread over dozens of property loans as well as some loans secured against other assets, like luxury cars. They consider it a big selling point to lenders that they do so. They even take the first loss on their loans if one goes bad. In most cases where loans lose money, this will mean that the founders will lose all their money in that loan, so it's a substantial commitment.
Directors at CapitalStackers** are lending 33% of the money in the P2P site's very carefully selected live property loans. That puts the founders' lending in the millions – and they intend to keep lending.
Both these P2P lending sites are growing, so the proportion lent by the founders compared to outstanding loans shrinks, but significantly the founders are continuing to lend a large amount of money.
A quick comparison between the two
Interestingly, the founders at both HNW Lending and CapitalStackers are pragmatic types and they like to provide a lot of information to lenders about individual loans. HNW Lending even offers its high-net worth lenders a direct phone line to its CEO.
Both sites share other similarities, most notably that they do property loans that tend to be unique deals, specially negotiated with the borrowers. So these are the kinds of deals where it is particularly useful to see the P2P bosses lending, because the loans require particular experience and skill to get right.
Lenders using either P2P site have experienced no losses, but aside from that their records have diverged due to their strategies.
CapitalStackers has no loans that have gone bad, meaning no borrowers have had to be chased for payments and CapitalStackers hasn't had to initiate any debt-recovery proceedings against them. It is CapStack's intention to keep it this way by vetting borrowers very carefully indeed.
Meanwhile, HNW Lending has suffered a high proportion of loans that have gone bad. Timely repayment is not a key consideration for this P2P site. Instead, HNW Lending relies firstly on its very wealthy borrowers being able to free up cash to repay at some point, even if that means paying late with heavy penalty interest. Secondly, it goes for loans with lots of security. This means it is able to repossess and sell borrowers' properties that can be worth up to 11 times the size of the loan amount in some cases.
The two P2P sites make an interesting contrast in our experts' reviews:
A special case
Growth Street's** founders have not made promises to lend lots of money through their P2P service, but they have committed to tripling its reserve fund pot from its current size, from £350k to £1.2m, if it becomes necessary.
The reserve fund pays out to cover expected bad debts and I think it is massively over-funded already, even before tripling.
I find Growth Street's founders' claim that it will triple the pot to be highly plausible, especially bearing in mind how open and transparent the business has been with 4thWay about all areas of its service. But a pledge to put money in the reserve fund is not the same as actually having put the cash in already. That would show the money actually exists and is set aside to cover bad debts.
Consider Wellesley & Co.**, for example. One of its founders borrowed something like a million pounds through its own website to invest in a personal property and shortly afterwards the director sold a property (the same one, for all we know) in order to pay for bad debts at the P2P lending website. This is rather less stable and secure than a pre-funded reserve pot.
Read the Growth Street Quick Expert Review.
The runners up
We know of a couple of other P2P lending websites where the founders currently lend a fair bit of money, but they have not stated any kind of commitment to keep it that way and they are not using it as a selling point as such.
- LendingCrowd's** founders currently lend around 5% of the total outstanding loans.
- Rebuildingsociety** told us that it lends around 4%. However, this was a long time ago and it has not updated us since then.
Does it matter if a founder lends or not?
Seeing that a founder has some skin in the game is very reassuring for lenders, but it doesn't always translate to excellent results.
FundingKnight originally told us that its founders kept 5% in every loan, but its lending record has not been good and the CEO has now been kicked out. Rebuildingsociety's record has also been less than stellar.
Please tell our readers using the comments section below if you know of other P2P lending sites where founders are deeply committed to lending a lot of money across many loans.
*The other one is “How have you developed good risk models with no or limited data history?” Well, you did ask.
**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 CapitalStackers, Growth Street, HNW Lending, LendingCrowd, Rebuildingsociety and Wellesley & Co., 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.