Proplend Hits £100 Million As Loanbook Stands Firm Against Disease
Proplend has just reached £100 million in lending since it started in 2014. This seems to me to be an apt time to take a look at its rate of growth and how it's changed, especially regarding risk level, as well as to take another look at its results so far.
Proplend's results so far
I'll start with its results.
Proplend* recently had its first write-off in its six-year history. £41,930 was written off on one loan, which is just 0.04% (less than half of one-tenth of one percent) of the total lent through Proplend. The average loan size at Proplend is £831,000.
Proplend's loans are split into up to three tranches – A, B and C – with tranche A lenders getting the safest slices. No tranche A lenders lost any money, while they've been making 6% to 11% per year on each loan.
The losses in the one loan with some write-offs all went to tranche B lenders. (There were no tranche C lenders in that loan.) As a result, lenders have, on average, now lost the equivalent of 0.2% per year (one fifth of one percent) on their tranche B lending, before interest. These losses are covered by the annual interest earned many, many times over, with tranche B interest rates ranging from 7% per year to 15% per year.
That said, if any lender didn't take appropriate steps to spread their money across many loans and unluckily lent in just that one tranche of that one loan, they'll have lost 31% of the original amount they lent. Proplend warns lenders in multiple ways to spread their money around. That's also the message that 4thWay most often repeats, because it's the single biggest way to reduce the risks of lending. And it reduces the risks enormously.
Tranche C lenders have still suffered no losses, while typically making two percentage points per year more interest than tranche B lenders.
Do check out the COVID-19 update being published this week for more on how Proplend's active loans are performing, as well as the Proplend Review, which has also been updated in the past few days.
Proplend's rate of growth and how its changed
You want P2P lending companies to be successful and grow to a size where they're sustainable for the long-term, and thus don't have to go into wind-down mode. The flipside is that a P2P lending company can press for too much growth. If it gets too large or grows too fast, this can be at the expense of lending standards or it can be reaching into types of loans that stretch beyond their expertise.
There are a surprisingly large number of signs that 4thWay's specialists look for to see whether a P2P lending company is going for growth at the expense of quality. I'm going to look at some of the key parts of their analysis on Proplend's growth now.
Overall size compared to available borrowers of quality
At fulfilling less than £50 million per year, Proplend is clearly small enough not to worry about its overall size. Even if it's relatively impressive for the budding P2P lending industry, it's a small portion of the overall market for these kinds of loans.
Lending capacity and loan originators
Proplend* has had the lending capacity to lend faster, as at times loans have sold out pretty quickly. Lenders want to lend more at Proplend and the more loans it arranges, the more money Proplend can make. So it must have felt pressure to approve more loans.
But Proplend took the time it needed to test what it was doing and hire a few more loan originators. (That's someone who is a cross between a loan salesperson and someone who undertakes the initial analysis in a loan.) A sensible speed suggests Proplend took the time to choose well and take standards seriously. These originators are in-house so they can receive the support and training they need.
Speed of growth and lending standards
Proplend has lent as much in the past two years as it did in the first four years, but that speed of growth is totally acceptable while it is still relatively small. Indeed it's normal for any business to grow rapidly in its early years when starting from small beginnings.
One sensible test of whether Proplend has been growing too fast is its lending policy. If it had slackened, then it had probably been doing just that. However, it's remained disciplined and sensible in its core lending criteria while keeping up its interest rates.
New types of lending
Proplend has tentatively stepped into a new kind of lending over the past few years: bridging loans. Tentative is good, as it shows caution in doing so – rather than a drive for maintaining growth at all costs.
Bridging loans are short-term property loans with a higher risk of turning bad than standard mortgages (at least until the bad debt is recovered). With these loans, the properties are not being rented out to provide a stable income to the borrower.
It's still too early to measure how well these loans of Proplend's will perform, although we've seen nothing to raise undue concern so far. Proplend has correctly charged higher interest rates to go with the increased risk of a loan suffering problems. It also takes steps quickly if things are not going as planned with a loan, which is very important, and it uses some very strict standards to safeguard lenders, such as the 50% loan-to-value on tranche A loans.
It has also taken on more property lending experience that likely proves useful.
What Proplend talks about
Talk is often cheap and we've found there's a lot of talk from P2P lending companies that we're better off just ignoring altogether.
However, in 4thWay's six years, we believe we've seen at least a modest correlation between loan standards and this “right kind” of talk, although it's not possible to measure that statistically at this stage. I'm talking about how much they talk about lending standards versus how much they talk about past growth and their future growth plans and expectations.
Proplend does like to show off when it reaches milestones – £100 million lent, for example. But far more often it both writes about its lending standards and talks about that focus with 4thWay's people.
Its people don't talk like they're driven mainly or solely by a desire to become a massive business. Instead, Proplend regularly talks about its desire to maintain standards, rather than showing off about all the new offices its planning to open to get more borrowers on board.
In my own research for this article, I noticed that no Proplend loan that has just an A tranche, and no tranche B or C, has ever suffered any serious problems, even temporarily. Yet these loans still have been paying around the average lending interest rate for the tranche, at about 8%.
This suggests that these loans are potentially of even better quality than other tranche A loans. For more on loan selections with Proplend, sign up to our newsletter to download the guide: Best P2P Lending Accounts And IFISAs During COVID-19. (If you were subscribed already on the 2nd July, 2020, you already got it sent to you via email. Please look in your emails on that date.)
Read the Proplend Review.
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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