Growth Street rolls out lending proposition for businesses, to businesses.
The alternative overdraft platform Growth Street – until now a purely borrower-facing outfit – has opened up the marketplace to lenders. In an unusual twist, the lenders being targeted are businesses, rather than individual investors. Growth Street sees great opportunity in offering returns of up to 6.5 per cent AER to businesses in the present low rate environment.
The Bank of England recently cut interest rates to the historic low of 0.25 per cent. Growth Street is one of the many alternative finance platforms to have hailed this as an opportunity, with CEO James Sherwin-Smith saying that businesses “must look to the alternative finance sector, not only as a way to borrow on better terms, but also to earn a superior return on their excess cash".
The platform sees something of a “perfect storm” forming around SME finance in general, with banks also pulling back from vast numbers of overdraft facilities. "In this post Brexit environment, it is essential that businesses have access to competitive financial solutions that support their endeavours,” said Sherwin-Smith. “We are therefore delighted to open our marketplace to serve the needs of businesses looking for a better deal on their excess cash, and further support the growing number of firms looking for finance on better terms than the incumbents can provide."
Sherwin-Smith tells us that he absolutely does not advocate marketplace lending investments as a direct alternative to bank savings accounts. But he does believe that it’s important for businesses to consider all of their options, and to take a “diversified view” about where they hold their surplus cash – especially with the threat of negative interest rates looming.
As an overdraft provider, the Growth Street platform offers a short-term investment proposition to lenders. Lenders set their own investment criteria and are matched with borrower demand for terms of 30 days, after which time they may choose to continue lending on the same terms, or to establish new terms. Neither the borrower nor the lender sees who they are transacting with.
The short-term nature of Growth Street's regularly revolving credit facilities allows the platform to play an active role in managing risk. Borrowers continually provide information to the platform in order to ensure that pricing stays consistent. Should Growth Street deem it necessary, the terms of a facility can be altered.
The platform’s new investment proposition will be covered by a protection fund, which currently equates to 9 per cent of all outstanding loans on the platform. Sherwin-Smith expects to maintain the provision fund at roughly 2x expected losses. The company’s expected loss rate currently stands at about 3 per cent, although no losses have been sustained so far.
Growth Street is running a promo offer of £100 for new investors, if they tie up money for a year.
Growth Street may have become the UK’s only pure business-to-business marketplace lender, but that doesn’t mean there’s no room for individual investors down the line. “It makes sense to focus on business pain points first and foremost,” said Sherwin-Smith. “But I anticipate maybe opening it up to individual investment in the future.” Such a move would require new regulatory permissions. Growth Street’s activities currently fall outside of what the FCA can regulate, but Sherwin-Smith and his team are actively working to change that.