Boss of new P2P lender Wayne Croad says Lending Crowd's secured SME loans offer investors a chance to diversify away from property

By Gareth Vaughan

Lending Crowd's managing director says the secured SME loans the peer-to-peer (P2P) lender's facilitating offer Kiwi investors the opportunity to diversify away from property.

Wayne Croad, who is running Lending Crowd alongside his other business, non-bank deposit taker Finance Direct, told interest.co.nz in a Double Shot interview the country's newest P2P lender aims to lend about $50 million in its first year of operation, as Croad strives to build a "quality asset base" of secured personal, vehicle and small business loans.

"This is a brilliant opportunity for investors. They've got the opportunity to be involved in an asset class that's normally been reserved for the banks - investing in SME (small and medium sized enterprise) secured loans, " Croad said. "We know, just look at the Auckland housing market, kiwis invest in property. Well, maybe it's time they started to diversify their investments."

Croad said Lending Crowd, which launched just before Christmas, has originated a bit over $700,000 worth of loans so far with the average size $22,000. Thus far there are about 60 active retail investors and more than $8 million of loan applications received. Finance Direct is registered as a Lending Crowd institutional investor, and has written about $300,000 of Lending Crowd's loans to date.

Croad said Lending Crowd is currently targeting retail investors and small institutional investors such as SMEs, partnerships and trusts, but ultimately aims to work with big institutional investors and banks.

"Ultimately we'll have other institutional, big specialist peer-to-peer funds that will come in and assist us to fund the platform," said Croad.

Working with such entities would enable Lending Crowd to facilitate loans quickly. Lending Crowd is talking to banks, he added, but wouldn't name any at this stage.

"We're talking to both institutional peer-to-peer funders as well as equity investors into the Lending Crowd platform," Croad said.

Lending Crowd's offering interest rates ranging from 7.90% to 19.75% for personal loans, and business loan rates from 8.95% to 19.7%. Of loans facilitated to date Croad said 70% have property and a vehicle as security, with interest rates ranging from 8% to 11%.

Borrowers platform fees start at $250 and can range as high as $1,450 depending on how much money is borrowed. Lending Crowd facilitates secured loans ranging in size from $2,000 to $200,000.

"Up to $20,000 the platform fee is $250 and that includes registration, costs of any security, and the discharge of any security. When you get into the loans that are over $100,000...those incur more cost and therefore the platform fee is higher," said Croad.

Investors returns can range from 7.9% to 19.75% minus the 10% interest fee Lending Crowd takes.

 "We only earn off the investors' earnings. We're not touching their principal," Croad said.

Loan terms are for three or five years, but as with the three other licensed P2P lenders, borrowers don't face any penalty fees if they repay early.

The Commerce Commission is probing whether fees charged by P2P lenders are covered by the fees provisions of the Credit Contracts & Consumer Finance Act (CCCFA).  Against this backdrop, and the launch of rivals LendMe, Squirrel Money and Lending Crowd, Harmoney quietly reduced its platform fees late last year.

 "We're obviously very aware of the CCCFA and the regulations around fees so we're comfortable that our fees fit into that structure," said Croad.

He is confident Lending Crowd's business plans and budgets will see that it's profitable.

"The execution of our plan budgets on achieving $50 million amount financed in the first 12 months. We think that's a reasonably conservative number especially in the market we're in. ($2,000 to $200,000 secured loans)."

"The way we've structured it at the moment we have five full time staff and we hot-desk some of the Finance Direct staff so we can utilise some of the existing infrastructure. Obviously we have a lot of IP (intellectual property) around risk mitigation already baked into the platform, but we've done this (Lending Crowd) in a very efficient way," added Croad.

The aim is to create "a quality asset base," which is one reason why Lending Crowd's facilitating secured, not unsecured, loans.

"We know from experience that investors have a very low appetite for the loss of their capital and risk, especially retail investors. So we want to build that trust and until the tide goes out you don't know who is swimming naked. So from our point of view we want to make sure when the book matures or you get another downturn in the market, that it's a platform that's providing consistent returns,"Croad said.

He wants investors who have invested in other people's loans through Lending Crowd to be looking at them and saying;, "Look I've got a quality asset base here, I haven't got 30% of my loan notes in arrears."

"(And) if we (Lending Crowd) have to give up a little bit of growth for that, so be it," said Croad. 

Once the business is established in New Zealand, Croad has ambitions to take Lending Crowd to Australia, something Harmoney's also doing.

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