Growth Street Review – The Closure of Growth Street

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Growth Street review

Growth Street Review

** Growth Street review updated August 28th, 2020 **

— Covid-19 Update: Growth Street is winding down its business and closing its doors after failing to obtain institutional funding —

Unfortunately, on June 15th, 2020, Growth Street announced the closing of its retail peer to peer lending to focus on institutional debt funding. In late June, growth Street announced it is winding down its business after failing to obtain institutional funding.

Growth Street is recalling all business loans in an attempt to repay investors. In July 2020, there were 86 outstanding borrowers and in August 2020, that number has been trimmed to 68 borrowers showing that Growth Street is actively winding down its loan book.

Growth Street realised it couldn’t continue to operate its business in its current form and decided to take proactive measures by calling a resolution event. A resolution event is where a business winds down its loan book in order to repay investors. It is important to note the difference between a resolution event and an administration event.

During Growth Street’s resolution even, loans will continue to be serviced as per normal.

I can report I have received 100% of the small investment I held with Growth Street. The money was received in my bank account promptly. Other investors have reported different results in monies returned ranging from 1% to 100%. Payments are being made to investors periodically as the loan book is repaid.

I will be updating this review as new information is received.

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In April 2017, I decided to take a serious look at Growth Street and after further research and pondering, I sent some of my £’s to Growth Street. Growth Street offers investors returns by way of facilitating peer to peer credit lines and invoice financing to small and medium-sized businesses. Lenders’ are able to access and withdrawal their money within a maximum 30 day period (under normal market conditions).

Growth Street announced layoffs and a restructuring of its business model as well as the replacement of CEO Greg Carter and on June 15th, 2020, called a resolution event effectively ending any new peer to peer lending investments.

My Current Investment Amount: No Longer invested

The Growth Street Review – What You Need to Know:

I used to really like Growth Street’s unique twist on peer to peer lending. 30 day credit line and invoice lending make sense for small and medium businesses looking to borrow money when they need it most. Growth Street states they have strict criteria and that borrowers must comply with and ongoing loan monitoring occurs.

Unfortunately, several events led me to reduce my Growth Steet investment down to a minimum. Read on for more information.

Equivalent Competitors

Ratesetter, Zopa, Lending Works

Growth Street: My investment experiences….

My lending experience was good and I liked the fact that the loans were 30-day revolving lines of credit meaning investors could theoretically give 30 days notice and exit. But a few events that occurred towards the end of 2019 made me uneasy. Firstly, ex CEO Greg Carter was replaced without notice, then two large loans valued at close to £2m defaulted. I made the decision to pull back my investment amounts in January 2020 as I didn’t see the need to take unnecessary risks.

In April 2020, a third loan valued at £595k at which point I had exited 90% of my investment.

Unfortunately, things never stabilised at Growth Street and the company announced its wind-down. I was lucky to exit pre-COVID and I know other investors have not been so fortunate.

I believe Growth Street is making all attempts to fully repay investors so I’m optimistic. Growth Street isn’t another Lendy or Fundy Secure situation.

What Was Growth Street?

Growth Street was a U.K. based peer to peer lending company that offered revolving credit lines and invoice financing to small and medium-sized businesses. These businesses were mainly weighted in business services, products and construction.

How Can I Contact Growth Street?

Email: contact@growthstreet.co.uk
UK Tel: 0808 123 1231

When Did Growth Street Launch?

July 2014

Are They Regulated?

Yes, by the Financial Conduct Authority #739318 under full permissions granted December 22nd, 2016. Investments made through Growth Street are not covered under the FSCS (Financial Services Compensation Scheme).

FCA regulation is nothing like the FSCS, which covers consumers when they deposit money in banks. The FCA reports to the UK government and has the ability to pursue criminal action against companies which violate its standards and codes of conduct.

Why Did Growth Street Decide To End Its Peer To Peer Lending Business?

Prior to the Covid pandemic, Growth Street ran into some difficulties with a few of its loan which defaulted. These loan facilities totalled more than £2m and were quite damaging to Growth Street’s provision fund which covered the losses. Growth Street made a mistake by providing such large loan amounts to very few borrowers. Once the provision fund was depleted by these losses and future missed payments, Growth Street entered a resolution event.

The Covid-19 pandemic was the straw the broke the camels back as Gorwth Street’s main customers were small to medium-sized businesses.

After the resolution event caused by the depletion of the provision fund, all loans and interest were pooled together meaning all lenders share the risk and bad debts equally.

Due to this bad loans and Covid-19 pandemic, Growth Street decided their current business couldn’t continue to operate so it announced a loan book wind-down with a goal to repay investors.

If I Have Money Invested, What Happens Now?

Since the wind-down is a solvent one, meaning Growth Street is continuing to operate its loan book without entering administration, I believe Growth Street will do its best to repay investors. Despite this, investors may still lose money. If the borrower loans cannot be repaid, all investors will share the losses equally.

How Long Will It Take To Repay Investors?

It’s hard to say because repayment depends on borrower repayment. There have been some investor repayments so far. The sooner borrowers are able to repay by paying off or refinancing their loans, the sooner investors will be repaid. I doubt this will happen until 2021.

Will I Receive Partial Repayments?

Yes, as loans are repaid, investors will be repaid. I received full repayment on June 17th, 2020. Other Financial Thing readers have reported additional repayments in July and August 2020.

As of August 14th, 2020, Growth Street has received full repayments from 32/90. Investors received a partial repayment on July 29th, 2020.

Will I Lose Money?

It’s possible investor capital losses will occur. The amount solely depends on Growth Street’s ability to chase borrower repayments and to legally seek repayment in the vent defaults occur. Personally I don’t think the recovery of defaulted loans will be good since most loans are mostly secured by personal guarantees, invoice receivables and company assets. The best-case scenario is that loans don’t fall into default and are repaid over time by the borrowers.

Growth Street’s provision fund will seek to cover missed or late payments but it’s unknown how much is in the fund at this time.

Since lenders aren’t receiving interest, all interest payments are being pooled and will act as a buffer against losses.

How Much Annual Interest Did Growth Street Pay Lenders?

5.2% per year

When Was Interest Paid?

At various times of the month after borrowers made payments

Was I Lending To Growth Street Or To The Borrowers?

All loan contracts are between lenders’ and borrowers’. You can see every individual loan and its contract inside your dashboard:

growth street review

growth street review

 

What Security Did Growth Street Loan Against?

All loans are secured with a first ranking charge over the assets of the business (debentures) or against individual invoice receivables. In some cases, personal guarantees are also given but I think personal guarantees hold very little security value.

What Are The Loan Loss Rates?

Growth Street’s loss rates were low from 2014 to 2016 but then experienced a spike in 2017 & 2018. In 2019, £961,000 in claims were made against the Provision Fund. There isn’t any explanation for this increase in losses.

You can see data on the statistics page.

In 2019, Growth Street placed two loans of over £1 million each into default. These defaults were absorbed by Growth Street rather than the provision fund.

In April 2020, another £595,000 loan facility defaulted.

This isn’t good news considering Growth Street’s loan book isn’t large and their recovery amounts have been approximately 15% of their defaulted loans.

WHAT I LIKED ABOUT GROWTH STREET:

30 Days Maximum Lender Exit (Currently Frozen Due To Covid-19)

Lenders’ only loan money for 30 days so providing the borrower repays and normal market conditions exist, theoretically your money is only tied up for 30 days. This is the most attractive reason to invest through Growth Street.

Competitive Interest Rates

Considering your money is only locked in for 30 days, Growth Street’s lender interest rates are very competitive. (Assetz Capital and Loanpad also offer a 30 Day Access product).

Extremely Professional Company

In September 2018, I visited the Growth Street offices and was extremely impressed with their operation, stability and professionalism. Ex-CEO Greg Carter has a vision leaning heavily on protecting investors and company growth.

Simple To Use

For those looking for a simple peer to peer lending option, Growth Street is a great choice. Only one lending product is being offered so there are no confusing decisions to be made. Auto-invest makes reinvesting easy.

Automatic Diversification

Growth Street operates like Ratesetter with regards to diversification and losses. Every lender bears the same risk and if losses occur, they are paid out of the Provision Fund.

So what happens if the Provision Fund runs out of money? A resolution event would be declared and all loan contracts would be automatically assigned to the Provision Fund. All loan payments would then be collected by the Provision Fund account and be paid out to lenders’ proportionately. This could have occurred after Growth Street placed two large loan facilities into default. The provision fund would have not have been able to absorb these losses.

ISA Available

Growth Street now offers an ISA where you take advantage of tax-free peer to peer investing. The investment product held within the ISA is the same as is offered in a regular account.

Provision Fund

Growth Street’s Provision Fund is used to purchase defaulted loans from investors. Between 2017 and 2019, the Provision Fund paid out over £2 million.

The fund is financed by the borrowers’ but ultimately comes as a reduction in lender returns. On their statistics page, Growth Street shows that their founding investors have contributed over £1.54 million into the fund.

Borrowers Subject To Rigorous Checks

Growth Street puts every potential borrower through the investigation torture chamber which is bad news for borrowers but great news for lenders’. Growth Street checks public and private company records, accounts and data to uncover any underlying or potential issues. After all the data is collected, a company director is interviewed and a business credit check is performed.

Finally, a Risk Rate is set for each borrower and this rate is collected as a contribution to the Provision Fund. The higher the Risk Rate, the higher the fund contribution.

I am concerned about how rigorous these checks were after the three large defaults.

Loans And Company Account Are Continuously Monitored

Similar to Assetz Capital, Growth Street continuously monitors its borrowers and their company’s performance, however, Growth Street takes monitoring to a new level by requiring Growth Street to access their company accounts. These accounts are monitored for performance and borrower account changes are made as necessary. If the borrower’s company is growing and doing well, they can receive extra funding and vice versa if they are under-performing.

Borrowers Use Credit Lines And Invoice Financing Rather Than Longer Term Loans

If you are considering peer to peer lending, know that the longer a loan is active, the greater the chance of default. Credit lines are usually shorter term loans of up to one year. Shorter loans mean less time to default which is good for lenders.

WHAT I DISLIKE ABOUT GROWTH STREET:
Investment Times Can Vary / Cash Drag Can Occur

Delays in your money being matched to borrowers happen with most peer to peer companies. This is referred to as “cash drag”. Since Growth Street’s product is a 30 day one, cash drag has been an issue in the past but was addressed and now matching times are less than 24 hours which is great. Match times are now clearly displayed on their website.

Two Three Large Loans Defaulted

In emails titled “New FCA Regulations”, information was provided about two large facility loans that defaulted. Growth Street stated that the Provision Fund would not have been able to fully cover these loans and in order to maximise recovery efforts, the two loans would be purchased from investors by Growth Street and any losses would be covered by Growth Street. While this was a great outcome for investors, I am concerned by these defaults and wonder how Growth Street will recover these losses.

A third facility valued at £595,000 defaulted in April 2020.

Poor Recoveries on Defaulted Loans

Since 2017, over £2.5m in Provision Fund defaulted loan claims have occurred. Of these defaulted loans, only £318,240 has been recovered. From 2014-2016, Growth Street had zero claims on the Provision Fund suggesting some loan issues after 2016.

Smaller Loan Book

Growth Street has a smaller loan book which increased from £9m in December 2017 to £40m in December 2019 and then back down to £21m in April 2020. Even though the book is increasing, when compared to the giant companies such as Ratesetter and Zopa, it’s still very small.


My Strategy

My investing in Growth Street was simple. Deposit money, set reinvestment instructions and receive monthly interest paid at various times of the month.

Despite the spike in loss claims on the Provision Fund which I kept a close eye on,  I had good experiences lending through Growth Street. That being said the three large defaults made me uncomfortable so I decided to exit my investments. I don’t see the need to take the extra risk when the economy is in dire straights.

The Growth Street Review Conclusion

Growth Street 30-day loans offered investors a unique way to gain a decent return without having to tie up money for years. Unfortunately, Growth Street was severely affected by the economic problems caused by Covid-19 caused and on June 15th, 2020, decided to close their doors to retails peer to peer lending in favour of institutional debt funding.

Being I was paid in full quickly after the closure announcement, I’m hopeful that Growth Street is committed to repaying all investors as quickly and efficiently as possible. The last thing the peer to peer lending sector needs is another poor repayment showing.

 


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** This page is for information purposes only. This information is not financial advice and has been prepared without taking your objectives, financial situation or needs into account. You should consider its appropriateness for your circumstances. All investing carries risks. Opinions expressed in this review are opinions based on my own personal experiences. The FSCS does not cover peer to peer lending and your capital is at risk. Please don’t invest more than you can afford to lose. **

 

 

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