Maintaining a low default rate is a key priority. There are two reasons for this: we want to protect investors from losing their investment and it's in our interest to ensure that investing via Crowd2Fund remains attractive for new and existing investors.
The key to do this is to conduct a credit risk review along with our overall due diligence of each borrower. This page summarises the key areas we focus on when conducting our credit risk and due diligence. We are also happy to discuss our due diligence process with any of our investors.
Director Background Checks
All directors related to an applicant business undergo checks for identity, fraud, linked businesses, personal bankruptcy, county court judgements, and credit history. Where a personal guarantee is taken, an assessment will be made as to the personal wealth of the individual, primarily if they are a homeowner, and their ability to support the guarantee, should the need arise.
Under UK privacy law, we are unable to disclose personal and financial details of company directors. Although this information will never be made publicly available, investors can invest safe in the knowledge that our risk team will reject any application where our checks indicate any of the following:
- Any director, or any shareholders of 10% or more, of the business is currently bankrupt, or was declared bankrupt within the last 6 years
- Any director of the business was also the director of a business which failed from unpaid debts or was the director of a business in the same industry which failed in the last 5 years.
- The business has an unpaid County Court Judgement in excess of £500 or a track record of judgements without satisfactory justification.
The above factors will result in an immediate decline of an application. Our risk team will assess instances where less severe examples of the above factors (historical failed businesses, judgements less than £500, etc) are present and adequate explanations have been provided.
Certain cases may be rejected at the discretion of Crowd2Fund’s risk team; these factors will be considered as part of an overall risk assessment.
All registered users of the Crowd2Fund platform are checked through third-party agencies to confirm identity, address, and bank account ownership. Our assessments make use of information provided by a range of credit and information checking agencies, including but not limited to Equifax, and UK Land Registry. Some of these checks will also be performed on investors prior to accepting investments.
As with director background checks, an element of confidentiality is required on the part of Crowd2Fund to protect the privacy of directors, therefore, we will not disclose the details of these checks.
Nevertheless, where our risk team is unable to adequately verify the identity of a majority of the director team or have any reason to believe that the directors or the business have links to any fraudulent activity in the past (proven or suspected), an application will be rejected.
The second aspect of our decision to support a loan is a security assessment for the facility. Whilst security isn’t a substitute for a business’s ability to repay their debt, a strong security package will improve the risk profile of the loan and will reduce the level of risk to investors.
Every loan is assessed on a case-by-case basis, however, some sort of security will be required in each instance, ranging from personal guarantees to floating or potentially fixed asset charges.
In the case of a business applying for debt funding (including loans, mini-bonds or revenue loans), our underwriting team performs an assessment to evaluate the business’s ability to meet repayments over the life of the requested loan.
The primary consideration for our underwriters is the business’s cashflow generation. We look at this in order to gage if they will be able to meet their repayments. Profitability is also considered to assess the business’s longer-term sustainability. We expect a minimum threshold of cash-cover for repayments.
In addition to reviewing filed and management accounts, we will also consider the length of time a business has been trading, as well as the strength of the directorship team involved in the business.
Compliance and Regulation
As of the 1st of April 2014, peer to peer investing became regulated by the Financial Conduct Authority (FCA) in the United Kingdom. Crowd2Fund Limited is authorised and regulated by the Financial Conduct Authority (FRN 623683).
Investors will note that Crowd2Fund uses their risk grading on the Investment Opportunities page campaign tabs. Investors should also take note of the credit risk rating set by Equifax on each business’s campaign page.
By showing our Risk Grading and Equifax's, we place the onus on investors to take their own view on an investment and allow investors to make their own decisions on the amount they pledge to a business.
Please bear in mind that the risk grading is there as an indication to be used to help an investor make a balanced investment decision and the risks you wish to take.
The above information is for informational purposes only. The individual circumstances of investors can vary, and the terms of each scheme are subject to change. For full details of any tax schemes, please refer to HMRC directly or contact your personal financial advisor or tax advisor. This page only relates to debt and lending rather than equity or donation based tax relief.