This is the first step with any borrower. Our credit team reviews each applicant’s financial performance, business plan and projections but more than that, they look behind the numbers and really get to know the business. This often involves face-to-face visits, detailed research and full access to the applicant’s accounting software. As well as building up a detailed picture of how the business is run, their management team, and growth prospects, we also use a number of third-party credit rating tools to evaluate their financial health. The results of both these people-based and numbers-based assessments are summarised in a scorecard, which is analysed by our credit team to determine whether we are able to offer the applicant a borrowing facility.

The majority of Growth Street loans are secured against the assets of the business. Depending on the creditworthiness and assets of the borrower, we sometimes take personal guarantees from one or more directors in addition to or instead of security on the business itself.

We only lend to limited companies registered and trading in the UK and with a majority of directors and shareholders in the UK. Each borrower must adhere to criteria set out in our credit policy. For example, they must be able to show a trading history of at least 15 months and/or, in cases where we are lending against specific invoices, they must have verifiable invoices we can take security against. Any proposed exceptions to the credit policy must be escalated, analysed and agreed by our Credit Team.

All borrowers have a relationship manager: this means Growth Street can assess our borrowers formally and informally, on an ongoing basis. Key business metrics are continuously reviewed and verified. Growth Street borrowing facilities are uncommitted, so drawdown requests are only processed if, using the latest data available, we can see that the borrower is complying with the conditions set out in their facility agreement.

By building relationships with our borrowers and closely monitoring their performance, we try to spot any early warning signs of upcoming bumps in the road. We pride ourselves on being a source of knowledge and expertise for our borrowers, not just a finance provider, so wherever possible we will work with our customers to develop, grow and trade through any peaks and troughs.

Below we’ve provided two case studies, which describe real-life examples of our monitoring process in action.

Case study A

Company A, a digital agency with a range of blue-chip clients, agreed a £30,000 line of credit with Growth Street. Before finalising the agreement, Growth Street had analysed Company A’s balance sheet and historical financial data in depth, as well as having multiple conversations with the company’s directors.

After a time, Company A’s two directors agreed to part ways, with the departing director taking a chunk of Company A’s clients with him. The firm’s remaining director then had to maintain payroll while taking part in several long, expensive tender processes. He applied to increase his facility limit by £20,000 to help him bridge the gap. Regular assessments of Company A’s financial data meant that Growth Street could see that Company A didn’t have enough incoming payments from clients to be able to afford an increase so unfortunately, their application was rejected.

After exploring all available avenues together, Growth Street and Company A then agreed to put Company A’s original £30,000 loan into default. Instead of drawing from the Loan Loss Provision, Growth Street called on the personal guarantee from Company A’s director and he was able to repay the outstanding amount in full. The business is still trading today, and Growth Street’s Loan Loss Provision was unaffected.

Case study B

Company B focuses on catering, predominantly working in the public sector. Company B’s work is seasonal, making it harder to project costs and ensure stable working capital throughout the year. Their initial credit limit was set at £100,000. Over time, strong performance led to Company B taking on more and more new business, which led to increased hiring costs.

Securing several new contracts meant that Growth Street extended Company B’s limit several times: to £150,000, then £175,000, and finally up to £200,000. Throughout the process, Growth Street have used Company B’s cloud accounting software to monitor their financial information in real-time. Growth Street’s relationship managers also regularly check in with Company B’s finance director to make sure the business continues to perform as expected.

Company B is still a great Growth Street customer and continues to grow with your help.

Founder contributions

Our founders have contributed capital to the Loan Loss Provision through equity contributions and loans and may choose to provide additional capital if needed in future.

Topped up

Each time a borrower makes a payment, a proportion of the funds received is used to continually top up the Loan Loss Provision.

Reimbursements

Investors are reimbursed by the Loan Loss Provision if a borrower misses a payment, provided there are sufficient funds available.

The Loan Loss Provision is designed to repay investors in the event of a borrower default. It does this by making payments on behalf of the borrower when they become due or, in cases where we think there is no reasonable chance of recovery, it will purchase the loan for full value, taking the place of any existing investors. To date, the Loan Loss Provision has paid investors for all capital and interest they were owed in cases where borrowers have been unable to repay.

This set up also means that you may at some point be matched to a loan that isn’t performing, but would continue to receive the full payments you expect. For example, if you had been matched to Company A (from the case study in Section 2 above) and the director hadn’t been able to settle the loan, you would not have known as the Loan Loss Provision would have made payments on behalf of the borrower or even purchased the loan from you for its full value. If this were to happen, the payments made by the Loan Loss Provision would look the same as normal interest and capital payments made by the borrower.

When businesses borrow through the platform, a portion of the interest they pay is paid into the Loan Loss Provision. The size of the contribution will depend on an assessment of the risk associated with that borrower. Each borrower’s contributions are calculated at the point when the original facility is agreed but can be adjusted at any stage if there is a change in the risk profile or performance of the business. Currently we collect between 3.0 - 3.5% of the amount borrowed to cover expected losses.

We can also adjust individual borrower contributions to account for changes in the risk profile of the loan portfolio as a whole. For example, if there were a downturn in the economy and lending became more expensive for borrowers generally, we could adjust borrowers’ rates to aim to keep the Loan Loss Provision at a sufficient level to cover any changes to our expected defaults.

You can find detailed statistics on the current and historical performance of the Loan Loss Provision on our Statistics page.

What happens if the Loan Loss Provision is depleted?

In the event of the Loan Loss Provision being depleted below the level of expected losses, Growth Street would declare a “Resolution Event”. This would mean all outstanding loan contracts would be automatically assigned to the Loan Loss Provision, and all loan repayments would be collected by the Loan Loss Provision on behalf of investors.

Repayments would then be shared out pro rata to investors to ensure diversification of default risk. There would be a material delay in repayments being made.

Another key benefit of the Loan Loss Provision is that it diversifies risk automatically for all investors. By collecting contributions from all borrowers and using those funds to cover missed payments across the whole portfolio, every investor is exposed to all loans on the platform rather than just the loans to which they are directly matched.

The number and risk profile of individual borrowers you are matched against will therefore not affect your returns or losses in any scenario. Your risk is diversified across the whole portfolio whether you lend to 1, 10 or 100+ Growth Street borrowers at once. This means you do not need to worry about manually splitting up your Lend Orders, or whether your Lend Orders are matched to multiple borrowers.

This would even be the case if the Loan Loss Provision were to become depleted, as in that case, we would declare a “Resolution Event”. In a Resolution Event, all interest and capital payments made by borrowers would be pooled and distributed amongst investors proportionally.