Leading peer to peer/marketplace business lender with 300% pa growth in lending.
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Assetz Capital is one of the leading Peer-to-Peer (P2P) lenders operating in the UK and aims to fund c£1bn of loans by the end of 2016. We facilitate direct lending between private/institutional investors and business borrowers via our online marketplace. We present lending opportunities to investors and they choose to fund them either by manual selection or through our automatic Investment Accounts.
Assetz Capital was the first P2P lender to our knowledge to offer purely secured lending, taking realisable security to avoid any loan defaults becoming losses and to date no investor has lost a single penny of capital on the loans arranged. Interest of over £2.5 million has been earned by lenders since commencement of lending operations in April 2013 on total loans funded to date of £55 million. Lenders have earned a weighted average gross return of over 10% pa in the last 12 months.
Assetz SME Capital Limited, a subsidiary of Assetz Capital Limited, is regulated by the Financial Conduct Authority (FCA).
The valuation cap for this convertible is £60 million and the discount rate is 10% provided that the convertible shares are issued within 12 months. In the event that the convertible shares are issued after 12 months, the discount rate shall increase by a rate of 0.8% per calendar month for a further 11 months, increasing to 20% in the 24th month. The discount rate will then be capped at 20% thereafter.
We help :
• Private investors who are seeking a fair interest rate in the face of poor returns on bank savings accounts. We aim to provide them an attractive return on their cash savings versus traditional alternatives such as dividend yielding shares and bank accounts. We aim to help them to achieve secure, healthy returns by bringing together a group of investors to fund a single asset backed loan to a quality and vetted borrower that has passed our strict credit policy.
• Creditworthy businesses who wish to borrow money and we expect to be able to afford to service the debt and repay it on time. Borrowers have had a difficult time securing finance from traditional banks and P2P is changing that.
• Institutional credit funds, who normally directly fund large corporates, can now also access the smaller business lending market with Assetz Capital being their bulk loan origination and servicing partner.
We raised over £50m by the end of 2014 and aim to have raised nearly £300m by the end of 2015 and approaching £1bn by the end of 2016. In years to come we intend to have funded billions of lending to quality businesses and property developers across the UK and to have helped transform the way British businesses are funded as well as creating great returns for investors at the same time.
"P2P is the ‘Walmart’ / ‘Ryanair’ of financial intermediation; with costs 60% lower than banks" says the investment bank, Liberum, a specialist in the P2P marketplace. We believe this will permit P2P to be more competitive than traditional banks with their expensive infrastructure, even when interest rates start to rise because the tighter cost base of P2P permits better rates for both borrowers and lenders than a bank.
Substantial accomplishments to date
Assetz Capital has become very well established as a UK business lender and has achieved a strong brand in the marketplace. The company is growing lending at a rate of around 300% per annum and with new institutional capital and loan origination deals now announced, we are aiming for further strong year on year growth.
Assetz Capital has around 7000 registered lenders, principally high net worth private investors although large-scale institutional lending is now commencing in Q1 2015, helping to add to the average monthly lending rate of several million pounds per month in 2014.Origination of credit approved loans is already running at over £20m per month in preparation for the substantial further growth in private and institutional funding.
Some key deals recently signed or about to be signed by Assetz Capital are as follows (see http://www.altfi.com/news/691 for an industry view on our deal flow – “2015 has kicked off in breathless fashion, with major deals popping up all over the alternative finance space. Assetz Capital has been the beneficiary of an impressive number of those deals.“) :
• Several SME business loan enquiry referral agreements are being negotiated with UK banks to increase loan origination volume, with the first one already signed in January with Royal Bank of Scotland. Chancellor George Osborne said of the deal “It is great to see companies … forging a new partnership with RBS to ensure that small British companies have the best access to funding”.
• First £150m funding line from an institutional investor, Victory Park Capital, has been agreed and announced.
• Several more similar institutional funding lines are being negotiated and heading towards potential agreed terms. £1bn of lending capacity is targeted by the company by the end of 2015.
• A 50/50 Joint Venture with Interface Financial Group, the global Invoice Discounting business, has been contracted (www.interfacefinancial.com) for UK and Europe initially. A sales objective of funding well over £10m of invoices per month by Q4 2015 has been set. (see : http://www.altfi.com/news/631)
• Pension investment in Assetz Capital loans via SIPP and SSAS pensions was permitted.
• Listed on MoneySuperMarket.com as a leading peer to peer investment platform.
• A separate international expansion team is ready to start and we have started to line up potential credit teams in initial target countries to run those businesses.
These accomplishments have placed Assetz Capital firmly in the top four UK P2P platforms and top two UK P2P business lenders (excluding platforms that invest largely institutional funds or into property).
See http://www.altfi.com/news/525 and http://www.ft.com/cms/s/0/26f09ef4-9158-11e2-b8... for further example coverage of Assetz Capital.
Industry recognition in 2014:
• Winner, ‘Best Financial Start-Up’ - Financial World Innovation Awards, London 2014 - beating Nutmeg in strong competition
• Winner, ‘Alternative Finance Provider of the Year’ - NW Insider Dealmaker Awards, Manchester 2014
• Finalist, ‘Alternative Lender of the Year - Commercial’ - Credit Today Awards, London 2014
• Finalist, ‘Outstanding Business Performance’ - North West Finance Awards, Manchester 2014
• Finalist, ‘P2P Lender of the Year’ - Bridging and Commercial Awards, London 2014
• Finalist, ‘P2P Business Platform of the Year (UK & EU)’ & Finalist, ‘P2P Property Lender of the Year (UK & EU)’ & Finalist, ‘Most Innovative New Entrant (UK & EU)’ & Finalist, ‘Fastest Growing Platform of the Year’ & Finalist, ‘Best Clarity of Data for Investors (UK & EU)’ & Finalist, ‘The People's Choice Award’ & Finalist, ‘Most IFA-Friendly Platform (UK & EU)’ - AltFi Awards, London 2014
Assetz Capital has several strong sources of revenue.
We charge the borrower an arrangement fee of typically 4-5% of the loan (typically 2.5% net of cost of sales) and we also charge them a monitoring fee represented as an annual percentage of the outstanding loan (typically 1-2% pa). Legal costs for the loan documentation and for the security taken for the benefit of the lenders are paid for by the borrower.
Lenders do not currently pay fees for buying, holding or reselling loans on our aftermarket although this will remain under review. We believe that this model where lenders pay no fees is well suited to the new proposed HMRC capital loss offsetting against interest income and is a competitive advantage versus those that charge substantial lender fees.
We are also negotiating several international licensing ventures whereby experienced credit teams in other countries can white-label our system in return for setup and customisation fees, an equity stake in the business and business model consultancy. Branding would be discussed and there would be the intent to roll up the business to Assetz Capital in most cases if it is successful. This is envisaged to happen on the IPO of Assetz Capital, if successful.
Use of proceeds
Minimum funding of £2m is sought from the crowd as well as further funding from institutions to enable Assetz Capital to:
1. Invest in further team growth - aiming to double the current team numbers in 2015.
2. Invest in further retail marketing - as ISAs are expected to become eligible to invest in Peer-to-Peer loans in 2015, we believe that our brand will be made more and more recognisable in the marketplace to attract a significant share of part of the £443bn already invested in ISAs and that is expected to be looking for better returns in P2P lending.
3. Invest in International JVs - Assetz Capital does not plan to set up itself in most countries but rather enter into JVs with experienced credit teams in those countries and taking the option to acquire those businesses under the Assetz Capital brand at a later date.
• Outstanding balances for loans to small and medium-size enterprises (SMEs) in the UK is £90bn and this is one large segment of our target market (source: Cabinet report 2014). Another large segment is invoice finance, which Assetz Capital intends to enter in 2015 through a joint venture with IFG and where annual advances of £17bn are made to businesses. We believe that this gives huge headroom for growth by 2025 when peer to peer lenders are estimated to have a 30% penetration of this market (source:Liberum research). Assetz Capital has a competitive range of products compared to a bank and includes term loans, invoice funding, trade finance, property development and bridging loans and commercial mortgages meaning that a borrower relationship can evolve over time rather than having to move to a new finance supplier.
• Private individuals have had a bad time trying to produce acceptable income from savings and investments for many years. In a recent study of the peer-to-peer business lending market, 57% of lenders are over 55 and the majority earn over £35k (source: Nesta). With the Government expected to open up investment into P2P through ISAs in 2015 and the new pensions freedom legislation changes this year allowing substantially more self investment of pensions to produce income in retirement we see a very bright future for continuing to deliver healthy returns to private investors.
• Credit funds, Pension Funds, Hedge Funds and Family Offices are all becoming more and more interested in lending into the Peer-to-Peer sector. Our first institutional investor, Victory Park Capital, has announced £150m of lending through us and more negotiations are currently in place with other funds. The directors of Assetz Capital aim to have institutional funding facilities contracted for as much as £1bn by the end of 2015, and much greater during 2016.
Characteristics of target market
Peer to peer lending is an important part of the huge new world of alternative finance that exists outside traditional banks.
"The alternative finance market in the UK is expected to grow to £1.74 billion of funding provided in 2014 [up from £666m in 2013] [and will grow to around £4.4bn in 2015]. Alternative finance covers a variety of new financing models that have emerged outside of the traditional financial system, that connect fundraisers directly with funders often via online platforms. " - (source: Nesta, UK Alternative Finance Industry Report 2014)
The UK market size for investor funding is:
• £443bn is held in ISAs and half of this is in low return cash accounts (source: Government)
• £150bn is held in Self Invested Personal Pensions
• Plus many trillion of investments are privately held outside SIPPs and ISAs and within investment funds
"If P2P was to take 10% of the total cash and equity ISA market, UK gross P2P balances would increase 48x to £44bn" (source: Liberum)
• Assetz Capital has already signed its first bank referral contract with RBS, the UK's biggest lender to small busineses, in order to pass over referrals for loan requests that it cannot fund. We also use a national network of high quality commercial finance brokers to carry out initial vetting based upon their career of experience in business lending. We then bring in one of our experienced regional relationship managers to review the business itself. These two stages ensure that mostly only creditworthy applications reach the head office for final credit review which helps make that process both efficient and in depth. It provides a current conversion rate of around 80% from head office received proposals into credit approved loans.
• We attract lenders through substantial PR activity in the national press as well as online. We also have very active Google advertising campaigns and are listed on substantial financial aggregator websites such as moneysupermarket.com. As stated in the Use of Proceeds section, a substantial investment in retail marketing through other channels will be carried out in the first half of 2015 to further grow our lender base. In addition we will continue to attend international events that facilitate the connection between large-scale institutional investors and ourselves with several more planned for 2015.
We are very active in the press with regular articles or appearances in the Financial Times, BBC, The Times, The Sunday Times, The Independent, Evening Standard, The Daily Telegraph, Observer, The Guardian, Money Week, Investors Chronicle, Radio 4 Today, Reuters, Wall Street Journal and many more.
Market capitalisation of UK and US peer to peer lenders is expected to be c $250 billion by 2025 (source:Liberum research) and the directors expect Assetz Capital to continue to be a key player in the market at that time.
Utilising our growing national network of Relationship Managers and independent brokers, we visit borrowers following initial credit reviews in order to complete some aspects of the overall credit approval process, prior to a detailed credit application being submitted to head office. This is a competitive advantage above those competitors who just receive electronic applications for credit and just carry out head office approvals without face-to-face visits at the business. We believe that a business and its funding requirement can be best understood face-to-face as well as being able to get a good feel for the business and its management team. Furthermore, we believe that a mix of traditional best practice lending processes and face to face relationships combined with a highly efficient electronic platform delivers the perfect mix of credit process quality and low cost of operation that permits safe and fast growth.
Our scale has led to us attracting strong interest from institutional funders that smaller lenders in the sector have not seen. Now that we have established ourselves as one of the major brands in the UK, we believe that the addition of the first £150m of institutional capital on top of the rapidly growing retail investment makes our market position very difficult to catch up. The economies of scale of our substantial infrastructure and very experienced management team is expected to kick in significantly in 2015.
We believe that our business lending does not compete directly with other P2P lenders as our average loan size is around £450k, several times that of the average for others. Additionally, these larger loans tend to be to larger businesses with more assets available to provide a security and with greater cash flow to service the debt and repay it.
Our range of lending products described in the Target Market section make the job of the broker and our relationship managers very efficient as we have a range of solutions for a business looking for funding, not just a ‘one size must fit all’ approach.