A new player in the peer-to-peer lending sector is offering investors up to 7.08% with a repayment “guarantee” attached.
Orchard Lending Club (OLC) has been spun out of the AIM-listed Orchard Funding Group PLC, which has a market cap of £22.74m. The relationship between the two entities is instrumental to the P2P offering. The parent company will act to “guarantee” the repayment of investor capital, even in the instance of borrower default. OLC sees this as a key selling point for the platform, stating that “no other peer-to-peer lender in the world offers a similar guarantee”.
A company spokesperson tells AltFi that every defaulted loan will be bought back at par, meaning that investors will not lose principal, although they may miss out on interest payments. The platform does not currently publish information on how much capital has been set aside to fund the buy-back guarantee scheme, but has advised us that it will monitor lending commitments and will stop offering the guarantee as soon as it reaches a limit that Orchard Funding Group is unable to manage. Were this to happen, OLC would continue to honour previous claims.
The loans to which investors on the platform will be exposed are made to professional practices and schools and their clients. These include professional fee funding, which enables lawyers and accountants to offer credit to their business customers; premium finance, which allows insurance brokers to do the same, thereby spreading the cost of insurance premiums; school fee funding and working capital for professional practices and schools.
OLC says that it specialises in “heavily-regulated” industries that are historically “unlikely” to default. The platform shares its founders with a pair of established companies in the professional practice and school funding sectors. These are Bexhill UK Limited and Orchard Funding Limited, which have been operating space for 16 and 8 years respectively. These two companies will handle origination responsibilities for the new P2P platform, in much the way that Dragonfly Property Finance fuels the new Octopus Choice offering. In this sense, OLC is for now a kind of front-end investment portal, which simply plugs investors into the existing deal flow of Bexhill and Orchard Funding. But the platform tells us that it will begin originating its own deal flow in time.
OLC will underwrite loans and then syndicate portions of these loans out to individual investors, retaining skin-in-the-game and investing alongside its investors.
Ravi Takhar (pictured above), CEO of Orchard Funding plc, offered his take: “Professional practice and schools financing is a historically safe lending market. In the last 16 years, our group has lent over £600 million to professional practices, schools and their clients and has had zero defaults. We are hoping that this, coupled with the potential returns and ease of access will make this an attractive prospect for investors.”
Investors in the platform are able to choose between receiving interest in monthly instalments or on maturity. The minimum investment amount is £100, with terms of 1-5 years available. Interest rates vary by term, from 4% over 12 months to 7.08% over 5 years. OLC will spread investor funds across the entire loan book, meaning that investors are not required to pick and choose between loans.
OLC is also publishing information on its loan book. These disclosures will not include details on loan volume, but will allow investors to view the size of each loan as a percentage of the total book. OLC says that the fact that it is listed prevents it from publishing loan volume stats, because these could be used to back into its revenues.
While this new platform will doubtless pique the interest of peer-to-peer investors, it may also garner attention from the City regulator. Newly appointed FCA boss Andrew Bailey said in a recent treasury select committee meeting that he is “pretty worried” about the way that peer-to-peer platforms are marketing themselves to investors. The fact that some of the platforms come close “to promising capital certainty” was chief among his concerns. OLC, with its talk of zero defaults and repayment guarantees, may be seen to be sailing close to the wind in this regard.
Still, the platform will be worth a look for experienced peer-to-peer investors looking to diversify their portfolios, and indeed has already received a fair bit of interest on the P2P Independent Forum.
Now in its sixth year, the AltFi London Summit returns on 18th March 2019 to 155 Bishopsgate. Last year proved to be a crucial turning point for the key players building the future of finance. Leading platforms launched oversubscribed IPOs, digital banks proliferated and mainstream financial institutions started their own disruptive propositions. With 2019 certain to be another landmark year, more questions will be asked by regulators with investor interest in disruption also poised for more rapid growth.