How Well do Platforms Know Their Borrowers?

Stephen Moss / December 17, 2018

There has been a lot of press coverage recently about peer-2-peer platforms and the risks involved, and a huge amount of opinion about where people feel the market is heading along with how much regulation the FCA will strangle the sector with.

I know an area in particular that has caused problems for some platforms and some unease for investors; is how well does the platform know who they borrow investors’ money to? Sure, they can put in place measures to reduce the risks, but do they truly know their borrowers?

Measures used to reduce risk typically include credit checks, financial profiling, property due diligence, RICS survey, QS report and sign off from an experienced underwriter. All are steps that like me, I am sure you would expect a platform to undertake before borrowing investors’ hard-earned cash. But here’s the thing, not all platforms carry out these basic checks, with some focusing more on the property than the borrower itself! Madness.

Obviously not all platforms are the same and many do undertake additional due diligence before signing cheques.

When the Sourced peer-2-peer platforms launches, we’ll take a very different approach to knowing who is borrowing investors’ money. We have one very strict rule: every borrower must be a Sourced franchisee.

Franchising has been around for a very long time and is an established way of helping nurture and grow profitable and sustainable businesses. Yet, franchising had never been applied to the investment sector, until Sourced arrived.

Sourced franchisees go through a rigorous recruitment process with more than 97% of all applications being refused, whilst the requirement to pay a substantial joining fee further removes non-committed applicants.

Before franchisees can apply to borrow money brokered via the Sourced peer-2-peer platform, they must complete a number of weeks of training and monitoring during which time Sourced HQ get a better understanding of each franchisee’s capabilities and the level of projects that they will comfortably be able to manage.

This unique structure means we won’t t just know our borrowers; we have selected them, trained them, developed them, we support them, and we ensure they take on projects they can deliver on. All of which we believe results in a reduction of risk for investors and a lower probability of defaults.

This is just one of the ways we have approached the peer-2-peer sector differently, whilst always having the reduction of risk at the heart of our model.

To register for our next investment opportunity, click here.

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