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An In-Depth Look at Spain’s Leading Peer-to-Business Lender

The Spanish peer-to-peer lending scene is still in its infancy – but one of the country’s most forward-thinking platforms is now beginning to pick up some serious traction.

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Spain has but a handful of peer-to-peer lenders at present – and Loanbook is at the forefront business-focussed bunch. Despite having launched as recently as October 2013, the platform is already catering specifically (though not exclusively) to the desires of institutional investors. Loanbook is of the mentality that a heavy weighting of funds on the platform from sophisticated investors, with supplementary retail involvement, is the best way to drive a rapid growth in lending volumes – particularly whilst the Spanish public is acclimatising to the online lending phenomenon. Also capable of offering multiple funding types (loans, pagarés and lines of credit) to SMEs, and sporting a personal approach with prospective borrowers, we’re given to wonder – is Loanbook the first in a series of next generation peer-to-peer platforms? We caught up with the platform to learn more…

Can you briefly introduce Loanbook for us?

LoanBook Capital is a Spanish peer-to-business (P2B) finance platform, providing an alternative to traditional savings and fixed income products to investors of all types via direct participation in loans, and other forms of credit finance, to mature, good quality Spanish SMEs.

LoanBook provides credit origination and management services to clients. These services are supported by an online platform, which gives investors access to credit opportunities through an auction marketplace, as well as a soon to be launched secondary market for trading loan participations.

Can you explain the background of the management team?

Our management team is made up of individuals with considerable experience in investment and credit management, as well as corporate operations. Each member of the senior team comes from an institutional background, which is evident in the focus of our business model. We put a great deal of emphasis on providing institutional-quality investment and credit management services to our clients, whilst seeking to address the commercial and operational shortcomings of traditional financial institutions in our innovative, technology-enabled model.

We have a three-person management team comprising James Buckland (CEO), Eloi Noya (Credit & Risk) and Johnathan Ransom (Investment Management & Operations).  

James was previously COO of London-based fund manager GPT Halverton. He is a solicitor by training, having spent over 10 years with law firm Ashurst in London where he specialised in private equity and M&A.

Eloi has an extensive background in the financial sector, having held management positions at Banco Pastor and Caixa Catalunya, including Chief Risk Officer and Director of International Business & Strategic Marketing for SMEs.

Johnathan comes from a background of managing investment funds, as well as business consultancy, most recently at Ernst & Young where he helped international investment management firms improve business processes, corporate governance and technology integration.

Aside from the management team, LoanBook draws from a depth of experience in its broader team, which includes individuals with expertise in corporate credit, private wealth management, the development of financial technology platforms and customer service.

Tell us about the P2B lending scene in Spain.

It wasn’t until 2010-2011 that equity Crowdfunding started to gather momentum in Spain, whilst the peer-to-business lending sector in Spain is still at an early-stage of development. There are currently more than 70 platforms in Spain, however the overwhelming majority of these are equity- or project-based platforms. The only platform, other than LoanBook, with a significant track record in P2P finance has done so via making primarily personal loans.

LoanBook is currently the most developed specialist SME platform in Spain and, most significantly, is the only platform with a model that is not solely founded on retail clients.

Although activity in the sector in Spain is behind markets such as the UK, it has picked up in recent months as a result of draft “enabling” legislation announced by the Spanish government earlier in the year. The draft legislation, which is currently in a consultation phase, is largely consistent with attitudes at EU level and supports the development of the alternative finance sector. Of particular importance is that investor restrictions will not apply to professional investors and those applicable to sophisticated investors are expected to be light. We expect regulation to bring much needed legitimacy to the sector and we are supporting the government in its development.

The opportunity for businesses like LoanBook to achieve significant growth in credit volumes in Spain is huge. The SME finance sector has traditionally been dominated by banks, with very few non-bank options.  However, banks in Spain have been particularly hard hit by the financial crisis and the recovery in lending volumes has been slower than in the UK for instance.  As such, credit supply to SMEs is restricted.

Demand from SMEs, on the other hand, is significant. Spain is a nation of SMEs, with in the region of 3.2 million small & medium sized businesses accounting for over 50% of GDP and employing around 60% of the workforce. Of these nearly 1/3 have solvency levels considered high or very high by Axesor (a Spanish credit rating agency), a position which will only improve as Spain’s economic recovery progresses.

How does LoanBook stand out within the Spanish market?

Aside from the fact that LoanBook, over its short life, has already funded more SME loans than any other Spanish platform specialising in P2B finance (€1.7m since October 2013), there are a number of specific characteristics that make us stand out from our Spanish peers.

Firstly, we offer investors the opportunity to invest in both loans and invoice discounting (in the form of pagarés) through a single marketplace. This gives investors more opportunities to manage risk, return and duration of investments, whilst also catering for a wider variety of investor product preferences. It also means, unlike other platforms, that we are able to offer a number of forms of finance to borrowers. In addition to term-loans and financing of pagarés we are also able to provide borrowers with short-term credit-line facilities.

Secondly, we put a great deal of emphasis on risk management; we have a team of credit risk professionals and have developed an in-house credit rating system that allows us to monitor and manage risk & recovery effectively, which ultimately leads to a better net return to our investors. Having a team of experienced credit professionals also enables us to take a personal approach to managing relationships with SMEs rather than being purely an online service.

And thirdly, our team is made up of professionals with institutional backgrounds in investment and credit management, which means that our approach to client service brings the best of institutional discipline and ‘alternative finance’ ease and transparency.

I understand that Loanbook has been built with sophisticated investors in mind from the off - can you expand upon that?

Our team, processes and infrastructure have been created to enable us to attract and manage sophisticated and institutional investment at an earlier stage of our development than would be typical for P2B platforms. So, whilst we do dedicate resources to attract retail clients it is not our primary focus in the short-term.

LoanBook has taken the approach, during the early stages of development, that retail investor volumes should complement larger investment volumes allocated by HNW and sophisticated investors rather than being the primary focus. The reason for this is twofold. Firstly, it will take time for Spanish retail investors to become aware of and understand the P2B finance proposition, and secondly this will enable us to increase credit volumes more rapidly (through larger individual capital commitments), which in turn will support our ability to offer greater volumes of credit opportunities to online retail investors as levels of awareness increase, thus providing the ability to diversify and minimise risk exposure.

What are the range of products on offer via the platform?

As mentioned in more detail above, we offer investors the ability to access both term-loans and invoice discounting products through our online marketplace, which is one of the unique features of our platform.

Term-loans are currently limited to 6 to 12 months in order to minimise credit risk and increase liquidity for our investors in the early stages of the platform’s development.

Our ‘invoice discounting’ product takes the form of discounting of ‘pagarés’. A pagaré is a promissory note issued by a customer to a supplier on receipt of an invoice for goods or services. Pagarés, in the same way as cheques, have an established and automatic payment process, as well as an accelerated recovery process, which reduce the risk of non-payment. Our marketplace allows investors to acquire a participation in these at an attractive discount to face value. The duration of a pagaré is typically 30 to 90 days.

What sort of businesses is Loanbook making loans to?

LoanBook only originates loans to businesses that meet carefully defined lending criteria. In the early stages of the development of our platform these criteria have focussed on established, good quality, small and medium sized businesses. As lending volumes increase, and greater diversification is possible, we intend to broaden these criteria, albeit maintaining the level of analysis we undertake before placing loans in our Marketplace.

To date, businesses typically have had revenues of between 0.6m and 20m Euros, have at least 3 years of operating history and have strong credit ratings, which are verified by both our internal rating model as well as external agencies. Borrowers are from sectors that have performed best in the current economic climate; sectors like real estate, construction and automobile are currently excluded for this reason.

We adopt a rigorous process of analysis and selection which involves visits from our credit team for qualitative assessment, and quantitative assessment using a bespoke risk model. A large proportion of applicants are rejected as a result. To provide further transparency to investors, our credit team carries out analysis and monitoring of loans on an ongoing basis, thus minimizing the probability of default and improving recovery timeframes.

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