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Crowdstacker Investors In Limbo Over Bad Debts

Were you were among the many investors looking for a no-hassle income investment, packaged in a tax-efficient Innovative Finance ISA (IFISA)? If the answer is yes, you probably invested with the Crowdstacker peer-to-peer lending (P2P) platform.

The platform offers loans to businesses that have the likelihood of potential growth. But not everything goes to plan as we’ll deduce from this article.

About Crowdstacker

Crowdstacker was amongst the earliest P2P platforms to gain full permission from the FCA. On 6th April 2016, it became the first P2P platform to launch an Innovative Finance ISA. Later in 2017, Crowdstacker broke the record for funding when it completed UK’s largest crowdfunded P2P loan to date. It received funding of over £15m from Crowdstacker’s users with Seedrs fundraising £815,694 on 19th December 2018.

Crowdstacker’s investment process provided a list of businesses that wanted to borrow money from investors. An investor would then manually select the business they want to lend to from Crowdstacker. Investors were to earn interest every quarter and receive their capital at the end of the loan term.

Two businesses were kin to borrower money from Crowdstacker, ‘Amicus PLC’ and the ‘Quanta Group’.

Amicus Bad Loans

Amicus is a short term property lending business. Lenders loaned their money to Amicus through Crowdstacker. Thereafter, Amicus loaned on a short- term basis to property developers, landlords and property professionals. These loans were known as bridging loans.

As fate would have it, Amicus went into administration in December 2018. The shocking twist in events that followed raised questions about the transparency of the P2P industry. Lately, the amounts lent through P2P platforms have increased leading to an increase in scrutiny.

Amid concerns that it may struggle to recover funds from Amicus, Crowdstacker investors are increasingly critical of the P2P lending platform,

Amicus’s subsidiaries were sold without prior agreement from Crowdstacker, with the proceeds going to another creditor.  This development raised questions on whether the platform will be able to recover investors’ money.

BurningNight Bad Loan

A similar case happened in 2017 when bar chain operator BurningNight raised more than £7.5m from investors via Crowdstacker’s platform. The target returns were 7% per annum over a three-year period. Investors were informed that the loan was secured over the assets and business of BurningNight with a first-ranking debenture. Freehold and leasehold UK properties were the purported assets.

Later that year, it emerged that BurningNight’s bars were underperforming and one of the company’s subsidiaries, B&W Logistics bought them in December 2017. However, B&W Logistics went bust in June 2018 and BurningNight itself went into administration in September the same year.

In December 2018, Crowdstacker emailed investors informing them of the verdict of the appointed BurningNight administrator. The administrator discovered that certain assets of BurningNight’s subsidiaries were sold to another company and the proceeds dished out to a third-party.

Why BurningNight assets were sold under the noses of Crowdstacker officials when the platform purportedly had first charge over the loan is still a mystery to many. Crowdstacker claims they’re waiting for the final verdict and are urging patience to allow the legal process to play out. But there’s little chance of investors recouping their capital investment in full as Crowdstacker seems “clueless” in their recovery approach.

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Creditspring Review

Two former bankers – Neil Kadagathur and Aravind Chandrasekaran – founded London-based Creditspring in September 2018. Creditspring is a trading name of Inclusive Finance Limited and is a direct lender authorised and regulated by the Financial Conduct Authority (FCA).

Creditspring is an innovative short-term lender that offers customers a new way to deal with unexpected expenses. In return for a fixed monthly membership fee, you can borrow as much as £1,000 a year. The company’s aim is to provide consumers easy access to credit in a safe, simple, and cheaper way.

Monetisation Strategy

Creditspring generates revenues mainly from the membership fees. The costs of Creditspring Core is £6 per month while Creditspring Plus is £8 per month. There’s also a secondary revenue generator from the company’s Financial Stability Portal.

In return, you can borrow £250 or £500 on two separate occasions throughout the year at 0% interest. You only pay back what you borrow plus the monthly fee. This removes the risk of your debt spiraling because of massive interest charges.

Who Is Eligible For Creditspring?

Creditspring is limited to people who have an annual income of at least £20,000. Plus you have to be a member for 14 days before you can draw your first advance. You’ll also be subject to credit and affordability checks. The 14-day waiting period allows you to use your advances as a back-up plan for future emergencies.

The firm insists that you will never pay more than £96 over any 12 months period. But if you opt not to take out any loans, you will still pay the full membership fee of £72 per annum. The clarity offered by Creditspring is a big plus, knowing that you won’t have to pay any interest, as well as your expected repayments.

Pros and Cons of a Creditspring membership

Pros

  • The monthly fee should be comfortably manageable for most people.
  • Creditspring membership can offer you a fair degree of peace of mind.
  • You won’t lose time searching for and applying for credit when a financial emergency strikes.
  • A rise in credit score from the membership subs and the loan repayments allows you access better interest rates in the future.
  • The loans are likely to be cheaper than a similar high-cost short term loan.

Cons

  • The minimum income requirement of £20,000 p.a. may put the service out of reach of some who might benefit most.
  • The 14 days waiting period may not be an option if you need money fast.
  • If you end up not needing to borrow, you’ll still lose the membership fees.
  • Your credit score will suffer if you pay your monthly membership fee late.

The Bottom Line

Innovative lenders such as Creditspring offer an alternative to payday-style urgent loans. Although interest is 0%, the cost of credit is covered in the membership fee.

If you take out short term loans on a semi-regular manner and meet Creditspring’s eligibility criteria, then this is a viable facility. But if you don’t take out a loan during the year, then you’ve effectively paid an interest rate of infinity percent.

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Crowdproperty Review

Crowdproperty is a peer-to-peer lending platform that specializes in giving loans to small real estate developers. They use Brismo, an independent market-leading provider of loan performance data to verify each loan. Mike Bristow, Andy Hall, and Simon Zutshi founded Crowdproperty in Birmingham in 2014.

The three co-founders background is in the real estate sector and have extensive experience in the selection and management of real estate portfolios.

To date, Crowdproperty has lent around 50 million pounds on properties valued at over £120 million. The firm currently has over 8,500 investors. The company is both solvent and financially steady, with a perfect record of closing at 1.1 million pounds round of capital funding.

Crowdfunding site Seedrs conducted the campaign with contributions from 575 investors and a pre-money valuation of £15.7 million.

Crowdproperty managed to break even in 2018, and the same results are expected in 2019. This and other factors add to the stability of the firm considering many Peer to Peer lenders are still operating at a loss.

Crowdproperty Regulation

Crowdproperty is authorised and regulated by the UK’s Financial Conduct Authority (FCA) with full permissions under FCA number 723959. The firm gained FCA permissions in September 2017. It’s important to note that the FCA is not the same as the FSCS (Financial Services Compensation Scheme), thus capital is not secured as it would be in a bank.

Registration and Conditions for Investors

Registration with Crowdproperty is open to people living outside the UK. But only EU citizens who can provide proof of residence in the EU can invest. Plus the platform requires its investors to have a bank account with an English entity.

You don’t have to live in the UK to open a bank account there. Many banks, especially online banks don’t ask for proof of residence to open an account.

Who Can Borrow From Crowdproperty?

Crowdproperty lenders lend directly to the borrowers who have experience in property development. Crowdproperty knows many of these developers and the firm trusts them as they are return clients who have taken out loans for other developments.

Loan agreements are directly between the lender (investor) and the borrower. Crowdproperty only acts as a middle man, managing loans, payments and debt collection. Should it be required, Crowdproperty can add an extra layer of safety with its ability to take over and manage projects to completion and sale.

This is a better option than having to repossess a defaulted property which can take years to sell and dispose of. Instead, developments could be completed and sold in a matter of weeks or months.

Is Crowdproperty A Safe Investment?

Crowdproperty’s real estate experts thoroughly evaluate and carry out a rigorous Due Diligence on each project proposal, and does background checks of its partners. Each project must meet a criterion of 25% return on cost and loans do not exceed 70% of the LTV (Loan To Value). For larger loans, loans are staggered in tranches.

The firm only makes loans on properties in which it can register such loans as the first load. In case of default, Crowdproperty will have preferential rights over the property.

Pros and Cons of Crowdproperty

Pros

  • Established in 2014 and with proven experience
  • Authorised by the FCA and regulated since 1 November 2017
  • Simple registration process
  • One hundred percent return on investment
  • Profitability target of 8% annually
  • The first legal charge for security

Cons

  • The secondary market is non-existent
  • There’s no buy-back guarantee