Growth Street Review
** Growth Street review updated June 19th, 2020 **
— Covid-19 Update: Growth Street is closed to new investors and top ups. —
Unfortunately, on June 15th, 2020, Growth Street announced the closing of its retail peer to peer lending to focus on institutional debt funding. Growth Street will recall all business loans in an attempt to repay investors. 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 portfolio I held with Growth Street. The money was received in my bank account promptly. Othe investors have reported different results in monies returned ranging from 1% to 100%.
I will be updating this review as new information is received.
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: Click here
My current rate of return: 5% (Pre-tax return after bad debts and fees)
* This opinion risk rating factors in types of loans offered, interest rates, platform history, default numbers and my own investing experience. My risk rating explained.
The Growth Street Review – What You Need to Know:
I used to really like Growth Street’s unique twist on peer to peer lending. 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 have led me to reduce my Growth Steet investment. Read on for more information.
Growth Street Review: My experiences so far….
My lending experience had always been good. The 30-day access option is nice and aside of the return rates being on the lower side of peer to peer lending, I was relatively happy.
But a few events that occurred towards the end of 2019 made me uneasy. Firstly, ex CEO Greg Carter was replaced without much notice, then two large loans valued at close to £2m defaulted. I made the decision to pull back my investment amounts in early 2020 as I didn’t see the need to take unnecessary risks.
Then 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. I was lucky to exit pre-COVID as I know other investors have not been so fortunate.
What Is Growth Street?
Growth Street is a U.K. based peer to peer lending company that offers credit lines and invoice financing to small and medium-sized businesses. These businesses are mainly weighted in business services, products and construction.
How Can I Contact Growth Street?
UK Tel: 0808 123 1231
When Did Growth Street Launch?
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.
How Much Annual Interest Does Growth Street Pay Lenders?
Market Rate: 5.2%
Is Interest Accrued Immediately Or When the Loan Starts?
Interest accrues when your money is matched to borrowers.
When Is Interest Paid?
At various times of the month after borrowers make payments.
Am I Lending To Growth Street Or To The Borrower?
All loan contracts are between lenders’ and borrowers’. You can see every individual loan and its contract inside your dashboard:
What Are The Fees?
Currently Growth Street doesn’t charge any lender fees.
How Long Are The Loans?
Is There A Secondary Market To Buy, Sell And Exit Loans?
There isn’t a secondary market but loans are only for 30 days so Pre COVID days, lenders could exit with 30 days notice under normal market conditions.
Because of Covid-19, exiting has been frozen.
What Security Does 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.
While I usually don’t see much value in debentures and assets being used as loan security, since Growth Street uses short-term lending with strict borrowing criteria, I’m willing to overlook this point.
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 Happens If Growth Street Ceases Operations?
Company failure is the single biggest risk to peer to peer lenders’. As required by FCA regulation, Growth Street has a fully funded wind-down and run-off plan. Contracts between borrowers and lenders remain binding, and the Loan Loss Provision Fund would continue to operate as this is held by a separate legal entity to Growth Street Limited (named Growth Street Provision Limited). Investors’ money would always remain entirely separate from Growth Street’s money throughout the run-off process.
Administration can be expensive to this would affect the amount of money that is returned to investors.
What Are the Different Accounts and Investment Options Growth Street Offers?
Growth Street’s simplicity shines through by only offering simple lending options. What used to be two products is now being reduced to one:
Market Rate: This is a volume-weighted average rate of the all matched loans for the last 30 days. This will be the only lending product offered.
I was always confused with Growth Street’s two product approach since loans selected at Market Rate were never filled. I’m glad Growth Street changed to a single lending product.
WHAT I LIKE(D) 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
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.
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.
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.
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 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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Disclaimers: I’m not paid to write this Growth Street review, nor am I employed by Growth Street or any of the companies I write about. In most cases, I have invested or continue to invest my own money through these companies. The sign-up links on this website are referral links. When you sign up for an account through my website, I receive a referral fee directly from the companies, at no cost to you. Your support enables me to continue to operate the Financial Thing website. You can read more about my referral links here.
** This unbiased Growth Street review is for information purposes only and should not be regarded as investment advice. Opinions expressed in this Growth Street review are based on my own personal experiences, investing my own money. Peer to peer lending contains risks so never invest more than you can afford to lose.**