Insured p2p investments

Insured p2p investments

Archover provides secured and insured loans to p2p investors. Money is lent to an SME against its account receivables. The debtors act as collateral for the lenders. Additionally, these A/R books are insured with insurance company COFACE, the 2nd largest trade credit insurance company in the world. This means in case there is a default; […]

Insured p2p investments

Archover provides secured and insured loans to p2p investors.

Money is lent to an SME against its account receivables. The debtors act as collateral for the lenders. Additionally, these A/R books are insured with insurance company COFACE, the 2nd largest trade credit insurance company in the world. This means in case there is a default; they can recover the money in a day rather than months. ArchOver is named as joint insured and loss payee. This additional feature of insuring the debtors is unique and will add tremendous value to the platform in the eyes of its investors. Their revenue model is simple. Borrowers pay 4.8% as a marketing fee and the originator also make a 1.5% margin from the spread between what they pay to lenders and what they charge to the borrowers. Thus lenders get over 6% secured returns; borrowers pay up to 8% and the insurance fee.

Borrower demand

The collapse in deposit rates combined with a retreat by banks lending to small businesses left entrepreneurs seeking alternative means of borrowing and investment. Four in ten businesses have their first-time loan applications rejected by banks, and only 55% of businesses see loan applications accepted, according to data by BRDC SME Finance Monitor. ArchOver was established with an aim to help the SMEs get the financing they need to grow and provide investors a truly safe and secure fixed income instrument. They are amongst the first crowd-lending platforms to offer highly competitive loans (7-8.75%) leveraged against the quality of an SME’s customer base.

Company history

ArchOver came into existence in 2013, but they made their first loan in 2014 as they were trying to perfect the business model. Hampden Group is the lead investor behind the peer-to-peer lender and has a 70 percent stake in ArchOver through a subsidiary. Hampden Group has also invested £ 3 million alongside private and institutional clients over the platform founded and led by the Chief Executive Angus Dent. Angus Dent qualified as a Charted Accountant and has helped build a number of technology businesses. In the first quarter of 2015, ArchOver was voted as the fastest growing Crowdfunding website in the UK.

Unique business model: secured and insured.

When somebody applies with ArchOver to borrow money, the experts will review the application and after that, another assessment is done by the experts at COFACE. COFACE does not allow ArchOver to take any borderline loans; there are only very high-quality debtors in the loan books. Ensuring each loan individually was costing ArchOver a fortune .So in the beginning of this year, they bought £115 million worth of credit insurance from COFACE and in the process were able to reduce the cost of insurance to borrowers. Premium paid by the borrowers now is relatively insignificant as compared to what they were paying before.

The average size of the loan is £100,000 to £300,000 with tenure ranging from 3 to 36 months. They have completed 81 loans worth over £17 million till today and are expected to cross £20 million this year. The biggest and the most noteworthy loan done by ArchOver recently is when they raised £2.3 million for a Scottish company called Duradiamond. It is believed to be the largest non-property related working capital facility ever raised by any platform anywhere in the world. The company is focussing on crowd-lending because it wanted to capitalize on the paucity of secure investment opportunities for potential lenders. The minimum investment has been kept at 1000 GBP to invite only serious investors without setting such a high limit to dissuade them from trying a new platform. It has 75 individual, 7 family offices and a couple of financial institutions as lenders on the platform.

Borrower profile

Usually, the borrower ranges from a variety of sectors. The majority of money is going into engineering and industrial businesses in midlands. ArchOver is a team of 16 people that focuses on UK market alone, with the possibility of expanding in future. Word of mouth, brand awareness, publicity, and finance brokers are the avenues used by ArchOver to find borrowers. They are trying to introduce a multi-currency aspect to their portfolio. The start-up is trying to structure the requirement of investors lending to UK businesses but receiving their payments in a different currency. This would help them expand their horizon of investors outside of UK.

SME lending

Roughly 7 percent of everyday investors are already using P2P platforms.  Investments in smaller businesses grew by 43% in the year 2015 and the alternative finance sector saw business lending increase by 75% to £1.26 billion in 2015. KPMG estimated that in 2015 online alternative finance platforms provided the equivalent of over 3% of all lending to SMEs (small and medium-sized enterprises) in the UK. For small businesses – those with a turnover of less than £1 million a year – P2P platforms provided an amount lending equivalent of 13% of all new bank loans. SME lending in general and lending against invoices, in particular, has exploded across US and UK.  Alternative lenders are at the forefront of the process with their innovative business models and ability to match investors and SMEs. Archover has brought a very important twist to the model with its COFACE partnership. This is evident from the fact that the company has had not a single default till now. The important question is whether this insurance element can be incorporated by other marketplace lenders? Though the insurance element might be replicable, the company has a golden opportunity to ramp up the business to become the originator of choice for lenders. Aggressive fundraising via the parent Hampden group or through external investors is necessary to ensure that the first mover’s advantage is not lost.

Author: Heena Dhir and George Popescu

George Popescu