Minimising Lending Risk
Lending, whether peer to peer or not, always carries the inherent risk that the Borrower may default on the loan and a Lender may not receive all of their investment back. Proplend takes the following measure to minimise the risk to Lenders’ capital.
Borrower and Property Due Diligence:
- A member of the Proplend team will meet every Borrower and visit every Property;
- Borrower due diligence includes conducting KYC and Anti-Money Laundering checks, reviewing borrower property experience, credit checking and financial information;
- Property due diligence;
- Tenant due diligence;
- In addition third party professionals are instructed to provide; 1) a RICS red book valuation; and 2) a Legal report on Title
- The above information is then documented and made available to Lenders from which to make an informed decision to lend.
- Whilst Consumer and some SME loans may be unsecured, Proplend loans are always secured over a commercial property located in England or Wales;
- Proplend Security Limited (PSL) a separate wholly owned subsidiary of Proplend Ltd, will enter into and hold the security documentation on trust on behalf of all of the Lenders with each Borrower. Please note; property security is loan specific and any security shortfall on a loan is not protected by any security excess of another loan;
- Each loan will be supported with a security package including; 1) a 1st charge legal mortgage over the property, which will be registered with the Land Registry/Companies House; 2) a debenture or share charge may also be taken and registered at Companies House; and 3) in addition the Borrower’s Director may be required to offer a Personal Guarantee;
- The enforcement of the security documents against a Borrower in the case of Loan defaults will be managed by PSL as trustee for the Lenders to that Borrower. PSL will take advice from the lending team, other professionals and propose a course of action to achieve the best outcome for Lenders. Further details about the events of default and the default process are set out in the Loan Conditions of the Proplend Members Agreement;
- While the security documents may include personal guarantees by the directors of the Borrower, this is not the same as saying Lenders are receiving a guaranteed return. Lenders capital is still at risk, but the risk is minimised by the security held under the security documents.
- Each loan will have 6 months’ worth of interest deducted from the gross loan proceeds payable to the Borrower and retained by Proplend as an interest reserve;
- This reserve will be available to pay the interest due to that Borrower’s Lenders if the Borrower misses an interest repayment when it falls due. The Borrower would also then have to top-up the interest reserve;
- The interest reserve is loan specific and is not available to the Lenders who have lent to any other Borrower
Proplend recommends that, Lenders should diversify their loan portfolio to help minimise the risk to their capital. By spreading your loans across many Borrowers as possible, you will reduce the impact of a Borrower failings to repay their interest or the loan.
- Proplend’s senior management team has 80 years’ property finance experience;
- All Lenders’ un-lent monies are held in a Client Money Account with Barclays Bank;
- Should Proplend for whatever reason cease to trade, all loan parts and security would continue to be administered on the Lenders’ behalf by a Standby Service Provider.