This page was last updated on 20 September, 2021
One of 4thWay's specialists has again updated the SoMo Review, summarising the key points. (If you've come here for the BridgeCrowd Review, BridgeCrowd has now become SoMo.)
It will probably take 9-10 minutes to read the main section. If you want to read the extra detail we go into on some topics underneath, it'll take about 15-20 minutes.
High interest rates and great reviews from lenders, but lets itself down on transparency.
What does SoMo do?
SoMo, formerly BridgeCrowd, does bridging loans and redevelopment loans of £25,000 to £5 million, with a planned term of up to one year.
When did SoMo start?
It's hard to pinpoint a start date for SoMo, as it has told us different dates and the website holds yet another date. This is probably because SoMo has gone through various business changes, and it depends at what you point you say it is the real “start” of this business.
Going on the information from SoMo, its website and from the companies registrar, I would say that SoMo started doing P2P loans in 2015, although non-P2P lending started in 2010. Total lending since 2014 is now £140 million.
What interesting or unique points does SoMo have?
SoMo gets some of the most consistently positive reviews from lenders. Lenders seem to have had low double-digit annualised returns on average and relatively few outstanding bad debts on loans made between at least 2010 and 2017/2018, which is highly impressive. However, we have just early data on results for 2019 and no information on 2020 and 2021 so far.
SoMo does a lot of senior lending, but it has done even more junior lending.
Before you read on, note that there's a high minimum lending amount of £5,000 per loan.
SoMo review: how good are its loans?
The maximum SoMo will lend on most types of loans can get as high as 75%, which is on the slightly high side for these kinds of loans. It's also higher than it used to be, having ticked up twice over the past four years from 65% to 70%, and now 75%.
However, the average loan size compared to the property valuation is 56% ,which is where it was in 2016. This is somewhat on the lower (i.e. better) side, suggesting the loans are low risk overall relative to competitors offering the same kinds of loans to the same quality of borrower.
For over half of loans, you're not first in the queue to get your money back in the event the borrower struggles and the property needs to be sold to repay loans. The inherent risks of such loans are substantially higher.
Since it's a temporary bridging loan, the borrower could well be over-stretched, currently borrowing more than would normally be acceptable based on their current income. The borrower's ability to exit the loan at the end through a sale or other means is critical, although SoMo has this strongly in hand with its loans.
SoMo's heavy focus is on quality of the property security rather than quality of the borrower, which means risk of a debt turning bad and needing lengthy recovery procedures is relatively high.
In the case of redevelopment loans, I'm pleased to see that SoMo bases its decisions on the current property valuation, not the hoped-for future value after works are completed. That is appropriate when the loan is based almost entirely on security quality.
For the kind of lending SoMo does, and it's quality, and factoring in the strict, short terms of these loans, I expect that around a quarter of SoMo's loans will be substantially late or have turned bad at any given point in time. And this certainly was the case a few years ago when we last had sufficient information.
More recent, but limited, data we managed to obtain from a third party in 2020 appears to indicate that perhaps around a quarter of SoMo's outstanding loans might be at least six months beyond their initial term and in lots of cases far more than that, which matches expectations.
SoMo during COVID-19
SoMo hasn't responded to our requests for information and data on its performance since the start of pandemic right through to what is now, pretty much, the last quarter of 2021.
How much experience do SoMo's key people have?
SoMo has proven itself over many years and this family business has all of the relevant skills and experience we'd expect to see in property lending and bad-debt recovery, and it also has complementary skills, such as relevant legal backgrounds. The latter is nice to have, since legal matters are usually outsourced.
However, we've not had the opportunity to meet and interview most of the key people and we can find surprisingly little information about them on the internet or in databases.
SoMo has no specialists for quantitative risk modelling, but such modelling is unusual in this kind of lending and so it's another nice to have. SoMo states that its team has processed thousands of loans over many years and never lost money. Although we haven't been able to verify this, we don't doubt it at this stage, based on its past results.
SoMo review: lending processes
A long time ago, SoMo talked us through its lending processes, which are high quality, professional and appropriate for these kinds of loans. We've not had an update since, although we're trying for one.
Its processes centre around looking for a margin of safety in worst-case scenarios and – very important for this kind of lending – a strong and realistic exit strategy for repaying the loan.
Fraud can be a problem in property lending, but clearly SoMo has this very firmly in hand with its processes.
It's clear from SoMo's lending processes that it's familiar with all of the possible risks that can occur in this kind of lending, even long-shot risks, and has these in mind when reviewing borrowers.
Feedback over many years from people who lend through SoMo has consistently indicated it tackles bad debts swiftly (and indeed aggressively). Rapid action is an absolute necessity for these kinds of loans. Otherwise, the risk of losses rises considerably.
How good are SoMo's interest rates, bad debts and margin of safety?
While SoMo states no lenders have lost money – which is a fantastic record – it's necessary with these kinds of loans to understand: what's happening to the outstanding ones that are currently bad debts and in the process of recovery? And how many are bad and how long they have been bad for? Why have loans been extended? How many have been extended and for how long? How many SoMo loans have been repaid by creating a new loan at SoMo, and why?
Without this fuller understanding of the current status as well as the history, it's not clear whether losses in more recent years are being hidden by kicking them further into the future. That behaviour can go on for years before being recognised if a P2P lending company chooses not to provide sufficient information, so we can't see the whole picture here.
We're unable to conduct our stress tests on SoMo to calculate what might happen to lenders if there's a severe recession and property crash.
Nevertheless, based on SoMo's excellent record from its earlier years and assuming this has continued, its interest rates are very attractive indeed. The high interest rates of about 10.56% before bad debts recently, and lending rates typically of 12% after bad debts in its earlier years, appear to be more than adequate compensation, provided lenders don't concentrate a lot of their money into any single loan.
Lending interest rates have slipped recently to be 10.56%, although this doesn't take into account the impact of any outstanding bad debts. We have no information on those whatsoever.
Has SoMo provided enough information to assess the risks?
SoMo doesn't provide data to 4thWay and only sporadically responds to 4thWay's attempts for direct contact with them. We haven't been able to meet them for some time. Some of our questions have been repeatedly ignored, such as requests to explain the capital requirements it states that the financial regulator requires of it in its lender terms and conditions, since SoMo's lending isn't actually regulated.
It has put off answering our questions about directorships, its myriad companies listed at Companies House and how they are interconnected, or whether interest is technically paid out from its trust fund. (Mostly we're asking about that last one for tax purposes – if paid from the trust then certain lender tax reliefs are applicable). It didn't answer queries into its wind-down plans or how/if they are funded.
As it stands now, statistics on SoMo's website are correct up to January 2020. SoMo is very slow to update data. Up to early 2020, it had incredibly allowed its statistics to get out-of-date by nearly two-and-a-half years. It is again now around two years late.
It's not just the figures being consistently out-of-date, but there are some gaps that can mean bad debts are potentially hidden or rolled. As a result, the figures we present to you on the 4thWay website – you should be aware – are usually substantially out-of-date.
Some of the data that does exist gives rise to more questions than answers. To give you one example, figures as of July 2018 had 0.9% of the debt being recovered through properties being repossessed and sold. As of January 2020 (the latest information available), that figure is unchanged, and yet 19 out of every 100 loans from 2018 are still outstanding. For these loans, lasting one year or less, this is a potential question mark as to why more of the debt has not already been recovered in court.
It's a bit weird to me, because the way SoMo picks and chooses statistics to publish is the sort of thing that happens when a P2P lending company wants to hide something, but my belief is that this is not the reason here. I believe they simply don't think enough about the information potential investors need to make a sensible, considered decision when they don't put enough effort into being open.
And, in SoMo's case, being open seems particularly important, because it's claiming double-digit annualised returns for lenders with zero losses on mostly junior lending. It needs to thoroughly back up what it's saying. It's a huge red question mark on what, quite possibly, should be a top-rated P2P lending company.
Is SoMo profitable?
For the first time. SoMo's company accounts – made up to March 2020 and filed in 2021 at the companies registrar – have been independently audited. We don't know the auditor, but it's always good to see that one has given a clean bill of health.
The accounts show that profits have risen again to over £3 million. SoMo has been solidly profitable for many years. That's still reasonably rare in P2P lending, which is a relatively new industry that is investing a lot of money to grow.
It's notable that SoMo's directors owe the company over £3 million in interest-free loans, as well as £1 million lent to another company controlled by a director.
What can you tell me about SoMo's cybersecurity?
As with last year, the SoMo website still appears to be based on out-of-date technology, making it a medium security risk according to information provided to 4thWay by Sucuri.
No malware has been detected. The website is listed as clean by Google Sage Browsing, McAfee and Yandex. The website is secure and carries a valid security certificate, helping to protect you when you supply your personal data. It has a firewall in place, which helps to block outsiders getting access to the data SoMo holds.
This assessment is not based on a full attempt to penetrate the website's security, but rather on broader scans, which is not as comprehensive and can result in errors.
Is SoMo a good investment?
I think it's quite reasonable for wealthier lenders to consider taking higher risk and lending through SoMo, but due to its opacity I think it should be limited to a small proportion of your investing pot.
What is SoMo's minimum lending amount and how many loans can I lend in?
SoMo is very exclusive, with a high minimum of £5,000 per loan, and you choose all your loans yourself. You still absolutely need to make sure you put no more than about 1% of your savings and investing pot into any one SoMo loan, preferably even less than that, and to use other lending accounts and/or savings and investing products to spread your risks.
SoMo usually offers more than enough loans over a 12-month period for you to build up a sensible portfolio of perhaps a score of loans or more. Alternatively, make a smaller portfolio and spread your money around more elsewhere.
Does SoMo have an IFISA?
SoMo does not have an IFISA.
Can I sell SoMo loans to exit early?
You can sell your loan parts to other lenders or to SoMo, if either are willing to buy, through its online secondary market. SoMo makes no charge for this.
You can list your loan parts for sale for the full amount. Alternatively, if you want, you can sell your loans for a discount. E.g. if you want to sell a £10,000 loan part, you might try to speed up the sale by offering it for £9,800.
You earn no interest while you list your loans for sale and wait for a buyer. So, at the point you list your loans for sale, you have all the risk with none of the reward. That said, SoMo says the average sale time is one-and-a-half hours and that it usually takes less than 24 hours. This is highly plausible, given SoMo's results and lender satisfaction levels.
What more do I need to know?
Unusually in this wider industry, online direct lending through SoMo is not regulated by the Financial Conduct Authority or any other authority. You're also not likely to be able to complain to the Financial Ombudsman Service.
SoMo's structure and lending contracts are such that, for tax purposes, you won't be able to offset any losses at SoMo with gains at other P2P lending companies, and vice versa.
SoMo Review – extra
In this additional section:
- A lot of unanswered questions.
- Is SoMo truly P2P lending?
- SoMo is not regulated for lenders and there's no recourse to the financial ombudsman.
A lot of unanswered questions
We have asked SoMo questions, sometimes more than once, and either been put off to a later a date (with the reason being that the information is “time/competitor sensitive”) or ignored.
We set our sights low in terms of the complexity of our queries and the detail we asked for, since we know from experience that P2P lending companies that provide little information without prompting are generally not willing or able to answer very detailed questions or requests for data.
I acknowledge that P2P lending companies don't exist to answer questions from 4thWay or other third parties, but we do generally expect that quality P2P platforms to happily engage with us and show off what they're capable of – particularly if they're not otherwise providing substantial, clear information to their lenders on their own websites.
Here are just some of the questions it hasn't answered:
Please tell us about City United Properties Limited
Specifically can you tell us about its connection to Social Money Limited through charges and now to you through your directorships/PSC?
United City Properties Limited
Can you explain this business with a similar name?
Somo P2P Limited
How is this platform going to be connected to, or take over from, BridgeCrowd? Why did you not just change the name of Social Money Limited?
All Somo companies
What will the full structure of Somo Bridging Limited, Somo Holdings Limited and Somo P2P Limited do?
Social Money Two Limited
What have you set up this company for?
Interest paid to platform lenders
Do you know if technically speaking – legally speaking – the interest paid out to platform investors is interest from the trust fund? Is that how it legally works or is it counted as interest from the bridging borrower or [from you]?
Your investor terms mention that you stick to the FCA's capital requirements. What are the requirements for [you]?
Do you have any wind-down plans you can share, and how are they funded?
A very quick update on your loans
We know that providing lots of precise data is a big chore for you, so please could you just say roughly:
- The total number of loans [you have] ever approved.
- Roughly how many loans are outstanding.
- Roughly how many loans are in arrears by 180 days or more.
- Roughly how many loans you class as defaults.
- [Have you] had any loans where some capital has been written off – how many loans was that?
- Roughly how many of your outstanding loans have been extended or are renewals of prior loans? (With a renewal being an agreement for a new loan based on the same or nearly all the same security – the renewed loan amount can vary.)
Is SoMo truly P2P lending?
Peer-to-peer lending is not a regulated phrase. By 4thWay's definition, any online lending company is peer-to-peer if it structures itself and its loans to offer the same level of protection as direct lending, in order to protect lenders in the event that the lending company itself goes bust. Because that's the whole point of the P2P setup.
Such structures can be achieved in different ways.
The most common way is to create direct lending agreements that the regulator calls “P2P agreements”. If you're a little familiar with the technical side of this, you'll know these are article 36H agreements. Another common way to facilitate what is effectively direct lending can be through setting up bonds correctly, possibly through special companies called special purpose vehicles (SPVs), which when set up correctly can be “bankruptcy-remote” – sheltered from other connected business' bankruptcy.
It can all get quite complicated to ascertain if an online lending company is genuinely P2P, based on the legal basis of each loan contract or how the benefit of that contract is passed from one lender to another, as well as how, and if, the lenders can be properly identified for each borrower.
SoMo has gone another route in how it is legally structured. It lends money to the end borrowers itself. It then assigns not the entire loan contract itself but the beneficial part of the loan contract (meaning the repayment of the debt and the interest due) to lenders using SoMo's online platform. Technically, lenders using the platform are lending to SoMo, but SoMo's obligation to repay is limited to whatever the end borrower repays.
SoMo then uses a trust to protect lenders' cash, as well as the proceeds received from end borrowers. The property security is also held on trust for the exclusive benefit of lenders, allocated to each individual lender as per the terms of the trust.
A lawyer has confirmed to us that this structure as described should protect lenders from seeing their money being diverted to Barclays Bank – or whoever – in the event that SoMo went bust. This is provided that BridgeCrowd has set up the trusts and agreements correctly. Our legal advisor said: “Legally these protections can work and all but eliminate insolvency risk – but they must be strictly followed in practice.
SoMo is not regulated for lenders and there's no recourse to the ombudsman
SoMo is regulated for some activities, such as chasing bad debts. However, your lending is not protected by the Financial Conduct Authority, because SoMo's relationship with you is not regulated.
We also therefore can't envisage any realistic circumstances as to when lenders using SoMo's online platform might be able to submit a claim to the Financial Ombudsman Service (FOS).
Why? Firstly, because you're lending to SoMo. When you lend to a company, the borrowing company isn't suddenly regulated or open to complaints to the FOS.
Secondly, because SoMo's regulatory permissions are borrower-facing, not lender facing, such as debt collection. It has the additional regulatory permission to be a regulated lender itself. However, that doesn't concern your lending to SoMo.
The fact that it doesn't have permission to hold client money is further evidence that SoMo is not handling investments in any legal or regulatory definition. When it holds your money, it's doing so because you have lent money to it; not because it's providing investment services for you.
More: visit SoMo.
You can see SoMo in our comparison tables, but remember that it has not aided us with keeping its information up-to-date for some time.
SoMo review: key details of its lending account
4thWay PLUS Rating
Interest rate after bad debt
Here we show the P2P lending site's own estimate
4thWay Risk Score
Lower Risk Scores are better. How is this different to the 4thWay PLUS Rating?
SoMo Quick Expert Review: high interest rates and great reviews from lenders, but lets itself down on transparency
SoMo, formerly BridgeCrowd, bridging loans and redevelopment loans of £25,000 to £5 million, with a planned….Read the full review here
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