Crowdstacker stands out for bringing the traditional investment bank manual in-depth underwriting approach to p2p investors. They provide 30 to 40-page information brochures that cover everything about the company including the risk percentage of investing in the company, helping the lender in making an informed decision.
As as result, the company was the 2nd FCA regulated P2P lender and among the 1st Independent Finance ISA (IFISA) authorized P2P lenders.
They have a simple investment process. They present businesses who want to borrow the money to investors. They call it “the stack.” The stack is built on four criteria’s.
- Financial Health- It is critical that business is financially sound and can make the payments.
- Security- In some cases, they take security for a loan over the company’s asset, such as property.
- Restrictions- It imposes prudent restrictions on the company as to what they can or cannot do.
- People- It keeps an eye on the reputation and track record of the people who run the business, to make sure they have the experience and qualification.
As an investor, one manually select the business they want to lend to from the Crowdstacker stack. In return, they earn interest every quarter and the principal is return at the end of the term.
In the last 12 months, the start-up has raised $6 Million for two companies. This investment was made by private investors rather than institutional investors.
Crowdstacker is only the 2nd fully authorized P2P lending platform by FCA. Crowdstacker acts a facilitator between lenders/investors and businesses who want to borrow money. The loan size required by borrowers on the Crowdstacker platform is bigger than that of other P2P platforms focussed on small and medium business lending. The main reason for focussing on growing and established businesses is they minimize the risk of defaults.
Crowdstacker is based out of London and was established in May 2014 and a subsidiary of Nineyards Captial. Two experts in the field of alternate lending came together to start this venture. Karteek Patel has 14 years experience in finance and also a founder of futures and options business, managed independent UCTIS platform and was a fund manager as well. His field of expertise includes launching multiple hedge funds, developing new financial products among other things. Mark Bristow is a chartered accountant and has over 14 years of experience in the financial sector and that includes 5 years in developing financial solutions in renewable industry and has assisted clients in making portfolios of renewable assets using various forms of financing. They have won Best New Peer to Peer Provider Award in January 2016, they were the finalist for “Best P2P Lender 2016” and also nominated for “Best Peer to Peer Platform 2016”by online wealth awards.
They have a simple business model; they do not charge anything from the lender. They charge a setup fee between 20,000 to 40, 000 GBP from borrowers to put together the documentation with a made to order animation video and 3.5% of the funds raised plus 0.5% admin fee for monitoring the loan and servicing.
Ex-auditors, accountants, attorneys, and sometimes industry specialists make up the credit committee team who decides about the commercial terms of the loan by looking at the company financials and assets. The biggest limitation they are facing is the quality of borrowers.
Since Crowdstacker is the 1st company to become and IFISA manager, their lending volumes have increased quite a lot. They turn down the borrowers who do not match their criteria. Their goal is not to do a bulk of loans at a time, instead, the founders want to concentrate on the quality of loans which is beneficial for the company and the lender. Hence finding the right borrower is fundamental for attracting the lenders.
A criterion for choosing a borrower is decided on few factors:
- Companies have to have more than 3 years of track record.
- They need to be profitable.
- Whether the companies can afford to borrow goven their cash flows.
The regulatory structure
Each lender enters into a loan contract, known as 36H agreement. Each lender loans through that contract to the borrower. The Same type of agreement is required if anyone wants to have such loan in IFISA and the platform also needs to be qualified as well. Crowdstacker acts as a security trustee on behalf of the lenders. It also provides loan monitoring for the clients. It uses a 3rd party custodian to hold the client money and regularly monitor the interest payments and the borrower.
In the case of defaults, it depends whether the loan is secured or not. So far, they have only done secured loans and they act as security trustee. In the event of a default, they contact the company or they use an enforcer who will take steps to recover the money or the last resort is selling the collateral properties to recover the funds. Default and recovery are the two metrics of the business. In the case of defaults, they make sure they have recourse against the company and its cash flows.
Due to the company’s automation and pre-screening process, they quickly select which companies qualify and merit potential underwriting attention.
Crowdstacker’s goal is to become part of the borrower’s long-term funding strategies with repeat business. They diligently work hard to bring clients on board who can stay with them for a long period of time and who are capable of doing successive raises.
Author: Heena Dhir