Summary: Growth Street is a relatively new venture in the business P2P marketplace, offering working capital loans and short-term finance to small businesses. Rates are lower than other platforms seeking to lend money to business, but Growth Street offers a slightly different proposition to lenders, with all investments pooled and protected by a discretionary provision fund. With only a short track record, it is difficult to truly assess prospects, although investors will be comforted by the fact that the business has seen £7.5m invested into it in 2019.
Here is how Growth Street compares to my other platforms offering business-related loans:
|Platform||Link||Target Rate (%)||My XIRR (%)||Status||Live Rating|
|Review||Up to 15%||8.78%||OPEN||4/5|
|Review||Up to 7%||5.68%||OPEN||2.5/5|
|Review||Up to 5.3%||TBC||OPEN||3/5|
|Review||Up to 16%||8.0%||OPEN||3/5|
JANUARY 2020: It turns out that one of the larger defaults was fraud. In light of the larger loans size, a downgrade to 2.5 stars is apt.
DECEMBER 2019: Some changes in Growth Street as the founder/CEO leaves. Additionally ISA marketing is suspended pending future compliance with FCA guidelines.
NOVEMBER 2019: No change.
OCTOBER 2019: Some quite significant news as Growth Street has decided to take some large defaults onto their own balance sheet. This boosts investor returns as the expense of a weaker platform. In light of this I will reduce my exposure a little.
AUGUST 2019: No change.
JULY 2019: No change.
JUNE 2019: No change.
MAY 2019: No issues, interest paid as usual.
APRIL 2019: No issues.
MARCH 2019: Interest paid as usual.
What is Growth Street?
Commencing peer-to-peer loans in late 2016, Growth Street aimed at a slightly different part of the market, aiming to provide businesses with working capital finance – in effect, providing cashflow for the gap between when products are sold and money is received. This has been further developed into a ‘Growth Line’ product, which differs from a traditional loan in that the amounts drawn down under the facility can vary. This has some obvious upsides to many businesses, for whom an overdraft may be particularly expensive.
The proposition also differs for investors into the loans. Although Growth Street make loans to a variety of businesses in a variety of different sectors, there is no choice for lenders as to how their capital is deployed. Instead, all money invested is pooled and diversified across the entire loan book, thus reducing the time required here.
Headline return rates lag behind other platforms offering business loans, and have decreased over the life of Growth Street. Currently (March 2019) the target return is 5.3% assuming reinvestment. On the flip side this return is backed by a discretionary provision fund, loans tend to be for shorter terms, and in real life 5.3% is potentially better than other platforms such as Funding Circle after fees and defaults.
Here is a list of Growth Street features:
|Loan Types||Small Business|
|Available in ISA?||Yes|
|Active on forum?||No|
|Sign-up offers?||£100 when you invest £2,000 for one year|
Is Growth Street profitable?
Growth Street is a trading name of Growth Street Exchange Limited. This company has been incorporated since 2015. The last accounts were filed on 19 September 2019 and cover the period of 12 months to 31 December 2018. These abbreviated accounts show a negative net asset position of £2.88m and implied loss of approximately £1.1m. Since this date, it has been widely reported that Growth Street has raised funds twice in 2019 in order to ramp up operations.
What are the alternatives?
There are not many platforms which are directly comparable. Some like Funding Circle and Assetz Capital offer business loans but not protected by provision fund. Platforms such as Lending Works and Ratesetter offer similar models but the underlying loans are different (personal loans).
Growth Street Operating Model
The Growth Street investing process is straightforward as there is only one type of account, and it is not possible to allocate your money in different ways. On signing up, you make a deposit to your holding account, and lending this out immediately accepts the prevailing market rate. Repayments come in monthly according to the loan agreements, and you can choose whether to reinvest all of it, or just the principal or interest.
Unlike other platforms, it is not possible to see exactly what you have loaned your money to. Growth Street provide a basic breakdown in their statistics about how much money has been loaned out and to what sectors, but it is not possible to view any more details than this. In your lending account, you can view loan contract agreements but with most of the details redacted this is not much help.
What the loan details do show is that most loan contracts are extremely short-term: 1 month being the most common period. This is perhaps understandable if businesses only want to borrow money for a short period of time. With this sort of time frame, the automatic reinvest facility becomes very handy to keep cash drag to a minimum. There are no fees for investors to pay, these being covered by the borrower.
This process is seamless, as a provision fund kicks in should a business not be able to repay, and is almost invisible in its use. We can tell it has been used though as there are statistics provided by Growth Street which details its current balance and claims against it.
With such short loan periods, it is perhaps no surprise that it is not possible for investors to sell out of their loans early. Should monies be required, all that is needed is to turn off the reinvest option and wait a month for loans to mature.
How are funds protected?
In common with all P2P platforms, monies invested do not qualify for the Financial Services Compensation Scheme (FSCS). Business loans are also unsecured debts. From the investor point of view, Growth Street provide a provision fund which is financed by a small proportion of all loans on the platform, which automatically kicks in should a loan default.
This is set out in some detail on the statistics page, and currently the fund is in credit by the tune of almost £1m. As a means of protecting customers the fund has been highly successful so far: with the average loan being under £90,000 we can see that the fund will not be made redundant due to a large claim (although this type of thing cannot be ruled out).
The recoveries statistics do demonstrate the riskiness of lending in this sector: approximately £1m of claims have been made against the fund, but only £75k of recoveries to date have been made. The inference being that if you make an unsecured business loan and it defaults, without a provision fund you will lose most of your money outstanding.
One of the downsides has become apparent in the last year, with some large defaults. The average loan may be larger than originally anticipated, leading to more volatile results when they do go bad. The company covering its own faux-pas is reminiscent to that of Ratesetter or Assetz Capital – fine while they have the cash but perhaps a problem if they do not.
Pros of Growth Street:
There are many things to like about Growth Street:
Ease of Use: With reinvestment settings turned on, this is about as hands-off as you can get, and no monitoring is required.
Short loan durations: With loan terms of typically 1 month, your money is not locked in here unlike other platforms which may require you to hold to duration.
Provision Fund: At present the fund looks strong enough given the average loan size (although this can change).
Pooled loans: The fact that investments are pooled means there are no worries about diversification, and also takes away the worry of cash drag.
Cons of Growth Street:
There are also a few downsides:
Lack of choice: The black-box model may not please all investors. There are no choices to make in loans, and also no details of who the money was loaned to.
Lower interest rates: Interest rates are lower than the likes of Ratesetter and Lending Works which offer similar products (there being a trade-off on loan flexibility), and much lower than other platforms offering loans without a provision fund.
Unsecured loans: Recovery rates on loans are extremely poor; if the provision fund becomes unable to cover all claims losses may be likely for investors.
Loan concentration: It is clear that there are some large size loans on the platform and problems with these could affect all loans via the pooling effect.
Growth Street look like a promising platform for investors that are seeking a hands-off, stress-free experience for a bank-beating rate of return. Performance wise they have delivered so far, although it could be said with testing times ahead, small business may be one of the worst sectors to be exposed to, as recoveries from defaults are poor. The provision fund is good, although does not provide a huge margin of safety, and this is crucial to the competitiveness of Growth Street from an investor point of view. With more of a track record and an uplift in safety net value this could improve further.
Disclaimer: This article represents my own opinions and should not be substituted for investment advice. Please research before you invest with any firm. Typically P2P investments are not covered by the Financial Services Compensation Scheme (FSCS) in the way bank deposits are, and there are no guarantees that you will receive the returns advertised (or even a return at all).