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.
The applicant goes through a pre-screening check which includes the following basic criteria:
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 | £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.
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 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.
When looking at a business, some key points Crowd2Fund look at are:
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.
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.
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.
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.
The credit risk indicator determines a base price indicated in the table below. The base price may be adjusted by the underwriting team up to 2% APR due to market conditions or credit risk. 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. The credit risk indicator is shown on every campaign page.
*This pricing model has been applied to any listings after the 16th September 2021 and historical pricing methods are available below.
| 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 |
The pricing model below was used for any listings before the 16th September 2021.
| 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. |
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).
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.
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.
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.
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.
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.