Understanding our Lender Marketplace - Part 1: The Exchange

This three-part series provides a behind-the-scenes look at how marketplace lending works at Growth Street.

Lender Marketplace

Recently, we’ve received a number of questions about how lending works on the Growth Street Marketplace. On the surface, it’s simple: UK companies borrow money from investors, who have made money available to lend, and receive interest in return. This is no different than any other lending arrangement, but as always the devil is in the details.

At the heart of Growth Street’s Lender Marketplace is a system called the Exchange, which matches requests to borrow with requests to lend. These requests are referred to as Orders.

Each Order specifies: 

  1. An action (borrow or lend)
  2. An amount of money
  3. A rate of interest (also called the Price)

Orders are timestamped when they are placed (the Time), and a unique identifier referencing the person or organisation that submitted the Order is recorded. No additional identifying information is used by the Exchange in the process of matching.

Matching

Orders to borrow are matched with Orders to lend on the Exchange using the following basic rule: Price first, then Time.

Each Price reflects an interest rate in 0.10% increments. Orders to lend will be matched first by the lowest rate offered, and Orders to borrow first by the highest rate offered. For example, an Order to lend at 6.3% will be matched ahead of an Order to lend at 6.4%. Similarly, an Order to borrow at 4.8% will be matched ahead of an Order to borrow at 4.7%.

Orders are then prioritised by Time, on a “first come, first serve” basis. Two Orders for the same Price will be matched in the sequence they are received. This means the shortest route to the front of the queue is to offer a better rate than is currently available on the Market.

The Growth Street Marketplace

Using the rules of the Exchange, the Marketplace matches Orders at rates set by borrower demand and investor supply. When you want to invest your money, you can choose between taking the Market Rate and setting your own rate.

Taking the Market Rate

For investors who want a quick way to get started, the Market Rate is the simplest way to put your money to work. This rate is averaged from all matches made on the Growth Street Marketplace in the prior 30 days, weighted by the amount matched, and is updated daily. When you choose the Market Rate, your Orders are likely to be matched faster, which means you can start earning interest more quickly.

Setting your own rate

If you wish to have more control over the rate of return on your investments, you can choose to set your own rate instead. For example, if the Market Rate is currently 5.5%, but you only want to lend at 6.2%, you can specify this higher rate when placing an Order. You’ll be matched when there is enough demand from borrowers to match at this rate, but until then your money will not earn interest. Depending on the rate you specify, it could take an hour, a week, or even longer, before there is enough demand for your Order to be matched.

You can also set your own rate if you want to be matched more quickly. Using the previous example, if Market Rate is currently 5.5%, you can place your Order below Market Rate, say at 5.4%, and you’ll be matched ahead of other Orders for a higher rate the next time an Order to borrow is submitted.

(Please note - since this blog post was published, we have made some important changes to the lender product. Specifically, we have removed the ability to invest at any rate other than Market Rate. Find out more about our Market Rate here.)

You decide

To date, we’ve restricted Orders to the Market Rate, which has always been 6.5% AER*. With no other rates allowed, Market Rate has not changed since the first loan on the Growth Street Marketplace in 2014. Thousands of loans for tens of millions of pounds have been lent so far.

Now, we’ll be giving investors the option to start choosing other rates. There will be limits on the rate you can choose at first, as we roll this change out gradually to make sure the market doesn’t become too volatile.

Soon we’ll hand over full control of the rate you choose to offer when you invest, as well as a full view of the current market. For borrowers, you will see a rate which reflects the current marketplace when you request a loan, allowing you to choose whether to accept that rate, or wait for the market to change.

In this way, investor supply and borrower demand drive the rate at which matches are made. At Growth Street, you decide the price at which you borrow or lend, not us.

* AER stands for “annual equivalent rate”. The AER assumes that you keep your money invested for a year, and reinvest interest.


This has been the first instalment in our series covering the Growth Street Marketplace. Next time we’ll examine how loans are operated once a match is made, including interest and repayments. The final instalment will cover Growth Street’s approach to handling credit and risk management, and how we work to protect investors. If you have any questions, please don’t hesitate to reach out to product@growthstreet.co.uk.

Your capital is at risk if you lend to businesses. Lending is not covered by the Financial Services Compensation Scheme. Please read the full risk warning here.

Written on in Product
Head of Product