Handpicked entrepreneurs

QUALITY INVESTMENT OPPORTUNITIES

Maintaining a low default rate for our investors is a key priority. We have two reasons for this: to protect investors from losing their investment, and ensuring that investing via Crowd2Fund remains attractive for new and existing investors.

We conduct a credit risk review, along with our overall due diligence of each business borrower.

We focus on 5 areas when conducting our credit risk and due diligence. These include financial affordability assessments and background checks. We are also happy to discuss these processes with any of our investors. All opportunities are handpicked for you.

Business application

The applicant goes through a pre-screening check which includes the following basic criteria:

  • The company must be LTD or LLP
  • Director should have a UK address
  • Director should have been director for at least 1 year

The applicant also provides Crowd2Fund with their filed accounts, management accounts if appropriate and a minimum of 3 months of bank statements. This allows Crowd2Fund to obtain an idea of the financial stability of the firm and crucially their affordability to take on lending.

General requirements for each product are as follows:

Director background checks Business background checks 18 Months trading minimum 1 year statutory accounts Β£100k minimum turnover Profitable Positive net worth Business plan Forecasts Rewards Director guarantee Debenture
Loan
Revenue Loan
Venture Debt
Usually early stage

Must have high growth

Usually loss making

Must outline a plan to repay
Interest only
Must outline a plan to repay

These are then reviewed by the underwriting team.

Director Background Checks

Every director related to an applicant business undergoes thorough checks for identity, fraud, linked businesses, personal bankruptcy, county court judgements and credit history.

Where a personal guarantee is taken, an assessment is 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, the personal and financial details of company directors can never be made publicly available. However, through our intensive processes, our investors are safe in the knowledge that our risk team will reject any application that 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.

Any of the above will result in an immediate decline of an application. Our risk team also thoroughly assess instances where less severe examples of the above factors are present. For example, historical failed businesses, judgements less than £500, etc, where the business can prove adequate explanations.

Certain cases may be rejected at the discretion of Crowd2Fund's risk team. These factors are always considered as part of an overall risk assessment and do not guarantee approval.

We use a combination of bureaus and tools to assess director credit worthiness and security.

Business checks

When looking at a business, some key points Crowd2Fund look at are:

  • Turnover - whether the business is growing
  • Profit – are the profits increasing (with the exception of those being considered for Venture Debt)
  • Net worth – is the company solvent
  • Bank statements – overall health of the cashflow
  • Other lending – how the affordability and security might be affected
  • Previous companies in distress

Crowd2Fund use credit bureaus, namely Equifax, to provide a credit score for each business and provide other insights. This can be found on the campaign pages.

Fraud Prevention

Every registered user of the Crowd2Fund platform is checked through third-party agencies. This is 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.

Please note, investors will also undergo KYC (Know Your Customer) and AML (Anti-money Laundering) checks. This is done when you upload your basic information and photo ID for verification.

As with director background checks, we cannot disclose the details of these checks. An element of confidentiality is required on the part of Crowd2Fund to protect the privacy of directors.

However, where our risk team cannot 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 proven or suspected fraudulent activity in the past - an application will be rejected.

Security Review

Yet another factor in our decision to support a loan is a security assessment.

Whilst security is not a substitute for a business's ability to repay its debt, a strong security package will improve the risk profile of the loan, reducing the level of risk to investors.

Every loan is assessed on a case-by-case basis. Some form security will always be required, ranging from personal guarantees to floating or potentially fixed asset charges.

Financial Assessment

When a business is applying for debt funding our underwriting team performs an assessment to evaluate the business's ability to meet repayments over the life of the requested loan. Debt funding includes, but may not be limited to, loans, mini-bonds or revenue loans.

The cash flow generation of each business is the primary consideration for our underwriters. This is in order to gauge 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.

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, in addition to reviewing filed and management accounts.

Crowd2Fund determines a lending amount, an interest rate, the term and any security that is required as part of the offer.

Pricing guidelines

Indicative pricing bands

Pricing is subject to more or less than the prescribed bands based on a weighted combination of the key variable guidelines and also some discretion depending on the market circumstances. Any deviations from the pricing brackets is clearly documented, signed off and communicated to investors.

Secured Fixed-Term Loan 6-8% APR If the business does not have fluctuating revenue, if it has assets more than or equal to the offered amount, if a debenture is taken that fully secures the amount offered.
Director Guaranteed Fixed-Term Loan 8-10% APR If the business does not have fluctuating revenue and the directors have a personal guarantee. No security is required.
Director Guaranteed Revenue Loan 10-12% APR If a business has fluctuating revenue, and directors have a personal guarantee. No security is required.
No Director Guarantee Loan or Revenue Loan 12-14% APR If the amount offered is not covered by a personal guarantee and has fluctuating revenue or stable revenue.
Non-profit but growing business and Venture Debt 14-15% APR If the business is not profitable but able to demonstrate affordability and growth, then venture debt will be offered. Generally, but not always, secured with a debenture or with a personal guarantee.

The Crowd2Fund credit risk indicator is a guide for the pricing on each loan. The higher the risk the higher the interest rate is offered. Interest rates currently range from 10% to 15% APR on loans and revenue loans offered on the platform.

New pricing model

The credit risk indicator calculates a base price however this base price may be adjusted due to market conditions or credit risk. The underwriting team may adjust the interest rate offered by up to 2% APR. If the price is adjusted then the reason for the adjustment is shown within the credit underwriting comments on the campaign page.

The table below demonstrates the relationship between the credit risk grading and also the base interest rate offered for each investment opportunity.

*New pricing model applied to any new listings after the 16th September 2021.

Credit risk indicator
11% to 12% Much lower risk
12% to 13% Lower risk
13% to 14% Medium risk
14% to 15% Higher risk
15+ Much higher risk

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).

Product risk grading

Crowd2Fund has various investment products such as fixed-term loans, interest-only loans, revenue loans, equity, and donations.

Our product risk refers to the indicative risk, these investment products generally have and is not directly linked to the credit risk of the businesses you are investing in.

For example, investing through equity is typically much higher risk than investing through a fixed- term loan offered to an established profitable business. The product risk is shown on the opportunities listing page and campaign page.

Equifax credit scores

Every business has an Equifax rating shown on the campaign page. On existing campaigns, it is updated on a quarterly basis and for new listings the most recent Equifax rating is displayed.

Equifax is a credit reference agency and provides ratings across the financial services industry to help lenders make informed decisions

The Equifax rating is shown as a number between 1 – 100 and letters A through to F, with a lower number or letter being a poorer Equifax score and a higher number or letter being a better Equifax score.

You can learn more about how the Equifax score is calculated here and indicates the financial health of a business listing.

Crowd2Fund Credit risk indicator

The Crowd2Fund credit risk indicator is shown as five different colour gradings. To calculate the credit risk indicator, we use the Equifax score objectively as a baseline and then we adjust our risk assessment based on specific characteristics of the loan, which Equifax can’t do. Each of the elements listed below carry a different weighting depending on how much or how little we believe they impact the overall risk of a listed opportunity.

  • Equifax score: This is the 3rd party business credit rating ranging from 0 to 100 and is calculated in a sophisticated way by Equifax, who are well recognised within the financial services industry. This is shown on the campaign page and has a very high level of weighting for the credit risk indicator.
  • Security: This is the level of security the investment has with tangible assets and level of coverage the estimated value of the security has from 0% to 100% for the loan. This has a higher weighting within our calculation.
  • Director guarantee: This is the level of coverage we estimate the director(s) assets cover the investment from 0% to 100%. This has medium weighting within our calculation.
  • Product type: This is how the product type increase or decrease the level of risk of an investment. This has medium weighting within our calculation.
  • Term: This is how long the term of the investment impacts the level of risk, with shorter term loans reducing the risk of a loan and a longer term increasing the risk. This has lower weighting within our calculation.
  • Director(s) credit score: This is how the average personal credit scores of the directors impact the level of risk with a loan, with higher scores reducing the risk. This has lower weighting within our calculation.

Other variables we assess during the credit review process are considered within the business Equifax score such as the sector or company financials. Equifax scores are calculated with a high degree of sophistication, hence why we try to keep the credit risk indicator relatively simple.

We may list an opportunity that has a low Equifax grade and score, but Crowd2Fund may have mitigated the risk through additional security, such as a director guarantee or a debenture and therefore the credit risk indicator will reflect this. The Equifax score, product type and credit risk indicator should all be considered before making an investment. Crowd2Fund also sets borrower pricing based on both market conditions and the level of risk associated with each transaction.

There are five credit risk indicators from light green being much lower risk and dark red being much higher risk and the spectrum is as follows:

Colour Credit risk indicator
Much lower risk
Lower risk
Medium risk
Higher risk
Much higher risk

It is important consider all IFISA investments and generally any P2P investments as high risk, therefore our credit risk indicator is relative to other investments listed on the platform.

Please bear in mind that the information we provide about businesses are indicators an investor can use to help make an informed investment decision and a full credit analysis is completed by an underwriter prior to any listing.

There is always the risk that a business fails to perform satisfactorily, irrespective of the indicators, due to variables such as market conditions, industry performance, business resilience and other idiosyncratic risks. This means, that in an entire portfolio, while statistically lower risk transactions have a lower probability of loss, individual high grade loans can default. It is important that investors consider diversifying their portfolio to establish an adequate balance of investments.

Risk warning

Past performance and forecasts are not reliable indicators of future results. Your capital invested is not covered for compensation in the event of a loss by the FSCS. Tax treatment will depend on the individual circumstances and may be subject to change. Please see our Risk section before making an investment decision.

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