We saw the digital transformation of eCommerce with what 10 years ago was a complex process to open an online store that can now be accomplished in minutes. Gone are the expensive payment provider integrations with the rise of Shopify opening an online store is a streamlined and automatic process.

With the automation through machine learning and artificial intelligence of once complex lending processes, the same can now be said for how eLending is completely changing the banking and financial worlds.

Unified Lending Management - What It Is & How It Automates Lending

Unified Lending Management (ULM) is the concept that describes the complete complex of measures business undertakes to digitalize their crediting processes.

A solution that can automate all steps in the lending process from the loan origination approval through to the collections and reporting process is the way that lending processes can be automated to be as easy as the opening of a Shopify store.

One company leading the Unified Lending Management (ULM) industry in terms of innovation and reliability is TurnKey Lender. TurnKey Lender designs and develops end-to-end intelligent software products that automate the entire lending process.

TurnKey Lender offers software solutions that automate every part of the lending process for different types of creditors: money lenders, SME financing companies, grant management institutions, leasing, trade finance, in-house financing, and bank-grade lenders. Currently, TurnKey Lender serves customers in over 50 countries as the trend is developing. The functional modules, that come either fully integrated or as separate tools, cover application processing, loan origination, risk evaluation, underwriting and credit decisioning, loan servicing, collection, and reporting.

How Artificial Intelligence Drives Lending Automation

Led by Dmitry Voronenko, who holds a Ph.D. in Artificial Intelligence and has been creating banking solutions for decades, TurnKey Lender heavily invests in the idea of applying machine learning, deep neural networks, and other AI approaches to make the lending process more streamlined, intelligent, and secure.

This is an example of how technology and science can often take complex matters and make them simple and automated. Below is an overview of the thinking process that TurnKey Lender’s credit decisioning engine does. Additionally, it conducts the complete risk evaluation and credit decisioning process within a 30-second time frame. It would work even faster if requests for risk profiles came back from credit bureaus faster.

To deliver the most accurate and secure system for credit decisioning possible, TurnKey Lender developed sophisticated models powered by both deep neural networks and proven statistical techniques. The solution combines numerous evaluation approaches in the assessment of each borrower.

In order to build the process to be more potent than traditional scoring, the contributing parameters can include financials scoring, firmographics, credit bureau evaluations, loan application scoring, and bank account statement scoring with rules, decision trees, cross-checks, and calculations.

In the new digital reality, AI-powered credit decisioning allows lenders to:

• Build up a fast and secure loan origination process
• Automate every step of borrower`s digital journey
• Find and filter out potentially ineligible borrowers based on sophisticated proprietary models powered by deep neural networks
• Reduce the operational costs of origination
• Be prepared for an increase in loan application volumes and expansion into new markets
• Enable unhindered scalability of the lending business

Conclusion

Dmitry Voronenko, CEO and co-founder of TurnKey Lender

AI-powered credit scoring system is a part of TurnKey Lender’s Unified Lending Management solution and it can be delivered in tandem with many other pre-integrated systems or as a stand-alone tool. The system provides a choice between a fully automated borrower`s digital journey and a semi-automated creditworthiness analysis. This helps lenders combine the power of predictive models with the knowledge of in-house experts.

For more info about the company’s lending automation solutions or for a free personalized demo, contact the TurnKey Lender team at sales@turnkey-lender.com.

And to wrap up, here is a quote from Dmitry Voronenko, CEO and co-founder of TurnKey Lender: “The importance of this kind of proprietary technology is hard to put into words. This scoring has the potential to make business crediting across borders and industries safer, faster, and more lucrative for everyone involved.”

These intermediates a source of funding that consents to pay the business of the value of an invoice after a deduction for commission and fees. The agent pays most of the invoiced value to the company directly and the surplus upon receipt of the balance of the invoiced company. There are three individuals directly included in a transaction: the Factor, who buys the invoice, the seller of said receivable, and the debtor, the company, or individual who must clear the debt attached to the invoice.

How these intermediaries or agents works

A factor enables a business to obtain direct capital based on the expected income attached to a particular sum due on a business invoice or an account receivable. Accounts receivable (AR) are a history of money clients owe for sales performed on credit. This permits other interested individuals to buy the funds payable at a reduced price in exchange for granting cash upfront. This whole process is referred to as factoring. An important thing to note is that it is not considered a loan, as the individuals neither issue, nor obtain debt as part of the action. The money provided to the firm in exchange for the accounts receivable is likewise not subjected to any limitations regarding their use. The requirements set by individual agencies may differ depending on their internal policies. Most of these transactions are done through a third-party financial institution, known as a factor. These brokers often free funds connected with newly acquired accounts receivable inside 24 hours. Repayment terms can differ depending on the cost involved. Besides, the portion of funds given for the particular invoice, this is referred to as the advance rate.

While there are numerous reasons why companies choose to use to sell their invoices as a business instrument. Here are some of the key advantages that most of these agencies firms provide:

Provide quick access to cash

When you render a product on credit, it is reasonable to wait more than 30 to 90 days on client payments. That process can lead to cash flow difficulties. Agents will offer an advance on any invoice, and this is often provided within a day. This immediately raises cash flow, enabling you to add workers, buy supplies, and meet other expenses that accommodate companies to meet demand.

Accelerated growth

Using the option of gaining finance by using your account should offer a firm the versatility and ability to grow at a more accelerated pace that is self-financed or dependant on loans. Additionally, using a factor is also a straightforward process to set up. But, instead of shopping for a conventional bank loan, you can start an account in days. Unlike standard banking terms, there is little limit to the amount of finance from one of these companies that has a robust capital structure.

Free up valuable time

Collecting cash from clients can be demanding on your company’s time and expenses. These businesses take over that position providing collections professionals who will attend to your clients until they pay the full amount owed. Many of these factors also offer online services that enable you to follow real-time customer repayments. Freeing up valuable time for you to continue to serve customers, seek out new business opportunities, and not have to worry about chasing money owed to you.

Fees and Terms

Before you enter into any agreement, you should pay close attention to all the terms and conditions of the contract. Unfortunately, these fees can vary considerably depending on the firm and the industry you are in. Some of these businesses only charge a straight fee, usually a percentage of the full value of the customer invoices. Other firms charge extra fees that cover capital transfers, transportation, insurance, and other expenses attached to doing business.

Experience in critical

It is essential that you find a business that has expertise in your industry and the capital necessary to continue to fund your company as it expands. Building a relationship with a factor could prove to be vital to the success of your company in the long term. Be careful not to choose a small firm, as they might not have the capital you need down the line to service your needs. Do your research before deciding.

Fund expansion

Most companies need to obtain finance to expand. But with a limited financial history, sometimes it is difficult to get the required financing. Unless you possess a reliable cash flow statement, most standard financial institutions will not even consider you for cash flow or asset-based finance. Most of these firms do not operate on the same terms; they will finance you primarily based on your company's credit history.

Find better customers

Over time, if you build a strong relationship with a factor, they have access to information on companies who may become your customers. They can tell you who to approach and, more importantly, who to avoid. This can save invaluable time and money.

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No debt incurred

Any agreement made with a factor is not a loan, you are merely financing your business through already accumulated invoices, any obligations are settled once your customers pay their debt in full. This is a huge advantage for smaller businesses who might already be overburdened with debt.

There are many more benefits to choosing to factor than just the ability to increase your company’s cash flow. The vast majority of factors will handle collections on your behalf, pursuing customers for their overdue invoices. Not only saving you both time and money as mentioned earlier, but it also gives you peace of mind.

One potential stumbling block will be the creditworthiness of your clients. A factor is more concerned with the ability of the invoiced parties to repay their debt than your company's finances. We understand that using a factor is not the most affordable form of financing, but it has proven an invaluable resource for many companies. Especially those who have chosen to operate in a field where clients are notoriously slow at concerting their receivables. Instead of waiting they focus on rapid expansion and using the increased profits to offset any expenses incurred.

What is the enterprise investment scheme and could it be useful to you and your business? Below Tony Stott, Chief Executive of Midven, has the answers.

The Enterprise Investment Scheme, we believe, is one of the investment sector’s best-kept secrets. Despite helping 26,000 privately-owned small businesses to access £16bn worth of funding for growth over the past 25 years, and securing attractive tax-efficient returns for investors in the process, the scheme has a relatively low profile.

That is now changing, however, as savers seek out new opportunities to plan for their long-term financial needs in the face of increasing restrictions elsewhere.

Most obviously, the once-generous rules on contributions to private pension plans have been steadily curtailed. Today, most investors are limited to annual pension contributions of no more than £40,000; moreover, higher earners, with annual incomes of more than £150,000, get a smaller allowance – as little as £10,000 a year for those with incomes of more than £210,000. The lifetime allowance, which levies tax charges on pension funds worth more than £1.03m, is also a problem for increasing numbers of people.

By contrast, the EIS offers much more generous allowances, with investors able to put up to £1m a year into qualifying companies. For many savers, the scheme therefore represents an increasingly valuable opportunity as a complement to pension saving, particularly as it may also be a more flexible option. Investors must hold on to their EIS shares for only three years to retain their tax incentives; pensions, by contrast, can’t be accessed until age 55 at the earliest.

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Those tax incentives are certainly alluring, spread across income tax, capital gains tax and inheritance tax:

• investors receive 30 per cent income tax relief when they make an EIS investment, reducing the cost of a £10,000 investment to just £7,000;
• profits are also tax-free, even where they exceed an investors’ annual capital gains tax allowance. The scheme also enables investors to defer paying tax on previous capital gains if they reinvest the profits on which the bill is due. Losses, meanwhile, can be set against tax;
• EIS shares are exempt from inheritance tax. Once they have been held for 2 years.

Understanding the investment opportunity

It’s important, however, not to let the tax tail wag the investment dog. After all, tax reliefs aren’t much use to investors who end up losing their starting investment.

It’s only fair to point out that the Government offers these tax breaks partly because it recognises the high risk of EIS qualifying companies, due to their illiquid nature. To be eligible for the scheme, companies must meet some restrictive tests: amongst other criteria, they must have assets of no more than £15m, fewer than 250 employees and be less than seven years’ old. These small, early-stage businesses are, by their nature, more likely to fail than larger more established companies.

That said, the best of these privately-owned companies also tend to deliver much more exciting returns than their larger counterparts trading on recognised stock exchanges. And investors can mitigate the risks of EIS investment through diversification. While would-be EIS investors do have the option of investing in individual companies with EIS-qualifying status – including many businesses on equity crowdfunding platforms – it is also possible to get exposure through a managed fund of such businesses run by a specialist asset manager. Such vehicles represent a potential way to spread your bets.

There are no sure things in investment, but the tax breaks on the EIS, allied with the opportunity to build a portfolio of shares in potentially high-growth companies, are an tempting mix for long-term savers. They are likely to be particularly attractive to those who are running out of pension allowance.

Indeed, the secret appears to be getting out there, with official figures suggesting EIS popularity has surged in recent years.

Figures from HM Revenue & Customs reveal that in the 2016-17 financial year, the most recent period for which data is available, some 3,470 companies raised a total of £1.8bn of funds under the EIS, though this was an initial estimate that HMRC expects to increase. In 2015-16, 3,545 companies raised £1.9bn of funds.

This won’t be a scheme for everyone. Investors will need to be prepared to accept the risk of partial or total losses, significant volatility over the short term, and to be patient. But for investors seeking out new opportunities to maximise the financial provision they are making for the long term, then EIS may be worth considering with your independent financial, legal and tax advisor.

Matt Robinson, Commercial Director at Ping Finance, believes that now is the right time for SMEs to borrow, and here takes Finance Monthly through the reason why.

Low Interest Rates

In the UK, interest rates are still incredibly low. Despite a 0.25% increase back in August 2018, bringing the interest rate up to 0.75%, the UK interest rate is still way below the average that it has been in the past, and this is only a good thing for those borrowing.

At one time, during the Thatcher leadership, interest rates rose to a staggering 17% to combat inflation. Interest rates continued to rise into the late 1980s due to the pressure of increasing house prices. The election of Tony Blair in 1997 gave the control of setting the base interest rate to an independent Bank of England. Interest rates then began to steadily decline, hitting 3.75% in 2003, before increasing again up to 5.5% in 2007. Since then, interest rates have dropped drastically due to the impact of the global financial crisis, falling all the way to 0.5% in March 2009, and then a further drop to 0.25% in 2016.

After the recent rise to 0.75% in August, Mark Carney, governor of the Bank of England, said there would be ‘gradual and limited’ interest rate rises in the future. With Brexit uncertainty on the horizon, predictions for the next couple of years are speculative at best. Therefore, there has never been a better time for the likes of SMEs to borrow. Even with the slight increase, we are currently experiencing one of the lowest interest rates in the UK’s history, and with the likelihood of increases on the way in the next couple of years, borrowing right now is a smart move.

There Have Never Been More Options

Nowadays, SMEs have the luxury of being able to be as picky as ever when it comes to their financing options. The alternative finance market has exploded since banks began to withdraw following the recession; traditional loans are no longer the only option for small businesses looking to borrow.

Crowdfunding, for example, can be an effective way to raise capital by allowing people to make small investments in a project or business. Online lenders can be contacted via online applications, and funds can be transferred into accounts in as little at 24 hours.

Peer-to-peer lending creates a form of borrowing and lending between individuals without a traditional financial institution being involved and can turn out to be a cheaper alternative to borrowing from a bank or building society.

Financial technology, asset-based lending, invoice finance and challenger banks are some other alternatives to traditional high street bank lending. These alternative lenders use algorithms and data manipulation to streamline the loan approval process from weeks down to days at most. With so many viable financial services available, there has never been a better time for SMEs to take advantage of all these different options.

Competition Between Lenders

In a similar vain to there being so many different financial options, there is also heavy competition between lenders. With so many lenders vying for your business, they are doing everything possible to make their services seem more appealing to potential clients. Lower interest rates in conjunction with reduced fees or no fees are just some of what’s being offered by many lenders in a bid to secure your business.

From the perspective of an SME, you have the power to shop around and discover the best deal for you. With so many lenders competing to provide the most enticing offers, SMEs can take advantage of this and get a better deal than they would if they had to go with the first offer they were quoted.

More Business Support

It has never been easier to start a business than right now. There is a lot more guidance and knowledge out there to help people bring their ideas and ambitions to life, and most of it can be accessed for free online.

One of the biggest barriers to starting a business has always been start-up cash, and whilst that is still the case, it’s not as much of a problem as it used to be. Online platforms not only create a global marketplace for SMEs, but it’s easier than ever to contact investors and lenders and start generating cash flow to get your business off the ground.

Obtaining funding is not the only barrier to starting a business; general business support is crucial for SMEs to become successful and be able to pay back their loans. Networking, paid mentorship, free courses, government led schemes, books and the wealth of information on the internet can all be utilised by SMEs to help grow a successful business.

Post-Crash Borrowing

Since the market crash in 2008, there has been a shift in attitudes when it comes to lending. There is a greater focus on lenders to look after borrowers, stamping out shady practices and creating a better environment for those who want to borrow. As 2008 becomes a distant memory, lenders’ appetites for risk has increased, and SMEs can take advantage of this current culture of encouraged lending.

A low Annual percentage rates (APR) loan is almost always provided to people whose credit score is excellent. You can easily do a lot to improve your odds of getting a low interest rate by reversing your credit damage. Besides your credit rating, there is very little left to get any bank loan with a low-interest rate.

In the following paragraphs, we show you four tips for improving your credit history if it's not good.

1. First Things First

(Image source: a3papersize.org)

Boost your credit score. Low Annual percentage rates loans are usually provided to applicants with stellar or high credit ratings. To improve your credit rating, remove as much of your financial obligations as you possibly can and repay what you owe in a timely manner. Also, steer clear of making too many credit enquiries. Every time, you make your credit enquiry by applying for a credit card or loan, it ruins your credit track record.

2. Submit an Application for Loans Using Collaterals

Unsecured loans have high interests’ rates even if you have a good credit rating. Therefore, in order to get a low Annual percentage rates loan, consider getting a personal loan as an alternative. For instance, you can use the car title as collateral. Normally the value of the security must be comparable to the particular amount of loan you want to acquire. Secured loans generally come at lower interest rates than unsecured loans. If you are getting confused with the interest rates on personal loans, you better try www.Zmarta.fi to compare the options from more than 25 banks and lenders in your area.

3. Using A Co-Signer

The next tip of a low Annual percentage rates loan is to get a co-signer. This is actually known as co-debtor. You can ask your family member (spouse, parents or sibling) who have a good credit score to sign the loan with you. Once you have a co-signer, loan providers consider their credit history before deciding the interest rate at which they give you the loan.

The Annual Percentage Rate will be lower in case your co-signer has an excellent score. Make sure that you don't go delinquent on your loan because if you do, then your co-signer will be responsible for making payment on the rest of your loan and the interest. Besides, it'll adversely affect his / her credit score so be aware of this.

4. Essential Cost Comparisons

There are different loan companies with different interest rates. So, try to do some essential price comparisons using loan comparison sites. Once you have compared some loan providers, make contact with a couple of them and ask for an offer. They'd take the details you provide and determine the interest rate and monthly payment, and send you all you need to know on that loan. You better opt for the one with the lowest Annual percentage rates. Stick to the tips above, and within 6-12 months you will see your credit rating start to improve.

The comments from Zahid Aslam, Managing Director of Investment Banking at Dalma Capital Management Limited, come as the firm reports an almost one-third jump in enquiries regarding Sharia-compliant bond issuances from corporations outside of the GCC.

The news follows S&P Global Ratings predicting in January the global issuance of Sharia-compliant foreign and local currency bonds is expected to reach as much as US$115 billion (Dh422.1bn) this year.

“It is our experience that sukuk-based solutions are establishing themselves as an increasingly attractive alternative for the funding of infrastructure and development projects,” observes Mr. Aslam. “For example, we are currently working with clients on a variety of ‘off the beaten path’ projects, including a refinery initiative in the CIS region and a scheme to help develop eco-tourism and sustainable farming in several African nations. We are also seeing interest from Malaysia, Indonesia and Pakistan.”

He continues: “I would suggest that there are five main drivers for this significant upward trend for sukuk-issuance to continue this year and beyond.

“Firstly, lower oil prices – despite recent gains – have created a funding shortfall for many.

“Secondly, there is notable and mounting pressure on global liquidity.

“Thirdly, the US Federal Reserve’s ongoing plans to slowly raise interest rates, making borrowing more expensive.

“Fourthly, global regulation is enhancing and becoming more Islamic finance-friendly.

“Finally, general awareness outside the GCC of the uses and benefits are becoming ever-more understood and valued. Dalma Capital, being a licensed and regulated asset manager and investment boutique with a network of institutions and accredited partners, provides all the necessary solutions for sukuk issuers and investors.”

Zachary Cefaratti, CEO at Dalma Capital concluded: “There is growing evidence that potential borrowers who had never considered Islamic Finance are better understanding the clear benefits of such solutions.

“This is cemented by the fact that deals can be structured to be project based, not centred solely on the credit standing of the borrower. Numerous virtuous aspects of the nature of Sukuk will continue to bolster their prevalence in capital markets globally.”

(Source: Dalma Capital)

Limited partners in private equity funds should be wary of putting managers under pressure to deploy capital – that is the conclusion of new research published today by eFront, the world’s leading alternative investment management software and solutions provider.

eFront’s research shows that there is an inverse correlation between the level of capital deployed during the first year of a fund’s investment period, and its eventual performance.

Looking at US LBO funds of vintage years 2000 to 2010, on average, funds deploy more capital in the first year (29%) than during each of the following ones. Years 2 and 3 are roughly at par (20%) and the amounts decline consistently thereafter (Figure 1). At first glance, the recent increase in pressure from fund investors to deploy capital would not imply a radical change of behaviour from fund managers.

Figure 1 - Yearly and cumulated capital calls of US LBO funds (vintage years 2000-2010)

However, a deeper look shows that the amount deployed in Year 1 fluctuates, from 14% (vintage year 2010) to 38% (2000). Surprisingly, the capital deployment in Year 1 does not seem to be connected with macroeconomic conditions: the coefficient of correlation with US GDP growth is only 0.19. However, there is an inverse correlation, of -0.32, between the amount of capital deployed in Year 1 and the overall performance of funds (Figure 2). This correlation increases as funds mature, with older funds (2000-07) showing a stronger inverse correlation of -0.46.

Figure 2 - TVPI and 1-year PICC of US LBO funds (vintage years 2000-2010)

This analysis raises some important conclusions on drawdowns, demonstrating that under pressure from investors, fund managers might have less freedom to select the best opportunities over time. Even though fund managers usually have a pipeline of potential investment opportunities when they raise new funds, there is no certainty about when these opportunities will materialise. Putting pressure on fund managers to deploy capital could thus lead them to execute investments they would have normally decided to pass on.

Interestingly, Figure 1 shows that a significant amount of capital is called after the usual end of the investment period of LBO funds. In Year 6, 7% of the committed capital is called on average. The most obvious reason associated with an extension of an investment period is that fund managers struggled to deploy capital during the usual five years.

Figure 3 - Multiples on invested capital of European and North American secondary funds

Surprisingly, funds of 2000, 2001 and 2010, which deployed respectively 102%, 98%, and 90% after five years still called 15%, 11% and 9% of the committed capital in Year 6. In theory, at this point, the remaining capital to be drawn to pay the management fees during the divestment years would be insufficient. The logical conclusion is that fund managers decided to use the provision of their fund regulations, allowing them to recycle early distributions operated during the investment period to effectively invest up to 100% of the committed capital. This is clearly the case for 2000, 2001, 2008 and 2010.

Another explanation is that some fund managers might execute buy-and-build strategies. Fund regulations in effect prevent new investments after the investment period, but usually, allow reinvestments in existing portfolio companies, including to support acquisitions.

Tarek Chouman, CEO of eFront, commented: “This analysis debunks some common assumptions about drawdowns. One of them is that fund investors have put an increased pressure on fund managers to deploy more capital faster. Given the fact that most of the fund regulations cap the capital deployed in any given year at 25-30% of the committed capital, it is difficult to see how much further fund managers can go in that respect. What is also clear from the analysis is that having the freedom to deploy or not is an important tool to invest for fund managers.”

(Source: eFront)

Richard Litchfield, Head of Operations at peer-to-peer lending platform Lending Works, talks you through the details.  

Still keeping your cash locked away in a savings account? Recent figures have shown that over 99% of saving accounts aren’t keeping pace with inflation — meaning that those looking to maintain or grow their wealth may need to look to investing instead (Mirror).

While the risks of investment can be daunting for some, there are low-risk opportunities out there. Peer-to-peer (or P2P) lending is a relatively low-risk investment which can offer much better rates than the interest on the average savings account (our current rate is 6.5% over five years). Not only can P2P be lucrative, but it can also be much less hassle than complex investments like stocks or shares, so it’s an excellent choice for those who are looking to start a portfolio. And, with the FTSE 100 hitting a six-month low after the IMF slashed global growth forecasts back in October (Guardian), the stock market is rapidly beginning to look like a less appealing option.

Here, I’ll explain the basics of peer-to-peer lending, along with a few tips for getting started and maximising your profits.

How does peer-to-peer work?

Peer-to-peer lending is a new sort of platform which matches up investors with borrowers looking for a personal loan, all of whom been vetted in advance for creditworthiness. This platform essentially takes the middleman out of the lending process (the role which would traditionally be played by a bank or building society), meaning that both investors and borrowers benefit from better rates. Investors can kickstart their P2P portfolio with Lending Works from as little as £10, and can choose how long they want to invest their money for.

Some platforms also allow you to select your own borrowers, or you can let the platform handle this on your behalf. More experienced investors might prefer the control that this offers, while others just like to sit back and let the P2P platform handle the finer details.

What sort of returns could I make?

Returns are linked to the length of your investment term: the longer you invest for, the higher the returns will be. Currently, we offer investors 5% per annum over 3 years, but this figure rises to 6.5% p/a over a 5-year term. While long terms are best for profits, you may want to choose a shorter term if you want more flexibility or need to see returns more quickly.

What are the risks? Is there any protection?

Of course, there’s no form of investment which can ever completely guarantee you’ll make a profit, nor is there any investment strategy which doesn’t involve some form of risk. But, because peer-to-peer lending diversifies your investment across lots of different loans, your losses are balanced by your profits if a borrower defaults on their repayments.

In addition to diversification, there are also other protections in place for investors. Some platforms have a reserve financial fund, which helps to cover any losses caused by borrowers defaulting. Peer-to-peer lenders are also regulated by the Financial Conduct Authority, which means that they must consider how to safeguard investor’s money in line with official regulations.

How can I maximise my profits?

If you want to see competitive returns, then there’s one rule to bear in mind: invest for the longest possible period you can afford. While many P2P lenders will allow you to withdraw your money earlier for a fee, it’s always better to leave it for as long as possible, as you could potentially see much higher returns this way.

I’d also recommend re-investing your earnings straight back into more loans: after all, there’s little point leaving your profits to sit in a savings account, as they won’t keep pace with inflation. Many platforms allow you to automate this process to make it even easier.

If you’d like to learn more about peer-to-peer lending, take a look at the government website to find more information, including details on how any earnings you make will be taxed.

How does development finance work and what are the criteria? Below Gary Hemming at ABC Finance explains the ins and outs of project financing and development loans in the property sector and beyond.

1. What is development finance?

Development finance is a type of short-term, secured finance which is used to fund the conversion, development or heavy refurbishment of property or properties. Property development finance can be used for a range of different building projects but tend to be used for ‘heavier’ projects, which require serious building works.

Projects which require ‘lighter’ works, such as internal refurbishment are likely to be better suited to a bridging loan.

2. How does it work?

Development finance can be more complex than residential mortgages, with funds advanced upfront and then throughout the build.

Funds are initially advanced against the value of the site, with most lenders happy to advance up to 60-65% of the value.

Once the build has begun, further funds are released at agreed intervals, with lenders often willing to advance up to 100% of the build costs. In order to agree to each stage release payment, the site will be re-inspected by either a lender representative or monitoring surveyor. If they feel that works are being done to a high standard and there is sufficient value in the site to release the next stage, funds will generally be released quickly.

The reinspection and further staged drawdown are then repeated until the project is completed.

3. How is the interest paid?

The interest is retained by the lender as each stage is drawn down, meaning there are no monthly payments to make. When the development is complete, the loan is redeemed along with any interest that has accrued.

This generally suits both the borrower and lender as cash flow can be difficult to mage during a build. As such, the removal of monthly payments makes the loan easier to manage for all parties.

4. How much does it cost?

The rate charged will depend on several factors, with the main ones being

• The developer's experience and track record
• The scheme being undertaken
• The location of the development
• The amount of funding required
• The loan to value/loan to GDV requested

Larger loans of say £500,000 or above will usually be between 4-9% per annum depending on the above factors.

Smaller loans of say below £500,000 will usually range from 9-12% per annum however if the deal is strong you could pay around 6.5% per annum. Usually, lenders price each application individually.

In addition to the interest charged, the will usually be a number of other fees, the main ones are:

• Lender arrangement fee – this is usually 1-2% of the loan amount
• Lender exit fee – this is not always charged but can be 1-2% of the loan amount.
• Valuation & monitoring surveyor fees – these can vary and it is almost impossible to offer a guide due to the number of variables.
• Broker fees – most brokers will expect to earn 1% for arranging a property development loan. Where they are not paid by the lender, they will usually charge it as a broker fee directly to you.

5. Understanding the maximum loan available

Property development finance lenders use a number of key metrics to calculate the maximum loan, they are:

• Loan to value (LTV) – The loan to value ratio is used to calculate the maximum available advance at any one time. The monitoring surveyor will revalue the site throughout the build to ensure the lender is never overexposed.
• Loan to cost (LTC) – Most lenders will want to know that you are putting up a certain amount of the money yourself, loan to cost is used to calculate this. For example, a maximum loan to cost of 90% would mean that the lender is not willing to put more than 90% of the total cost of works into the scheme. You would, therefore, have to pay at least 10% of the total project cost by way of deposit.
• Loan to gross development value – Otherwise known as loan to GDV, is the maximum percentage of the loan that the lender is willing to offer. If a £1,000,000 scheme had a maximum loan to GDV of 70%, the maximum total facility would be £700,000.

The lender will combine all 3 of these metrics to calculate the maximum loan. Where there is a conflict between the 3 figures, the lower of the 3 will be chosen to cap the loan.

6. What happens when construction works are complete?

When the works are complete, the loan will generally need to be repaid. Often, people look to refinance to a term loan such as a mortgage or switch to a development exit product whilst the site is sold as this can be cheaper than the development finance, maximising profit.

The facility will be set up to last for only the build period, with a grace period to allow time to refinance or sell. Development finance should never be used as a long-term finance solution.

The 05: Do Not Honor card declined response is the most common and general ‘decline’ message for transactions that are blocked by the bank that issued the card. This week Finance Monthly hears from Chris Laumans, Adyen Product Owner, on the complexities of this mysterious and vague transaction response.

05: Do Not Honor may be the largest frustration for any merchant that regularly analyses their transactions. Although it frequently accounts for the majority of refusals, it is also the vaguest reason, leaving merchants and their customers at a loss about how to act in response.

Although unfortunately there isn’t an easy, single answer about what this refusal reason means, there are several suggestions as to what could be the cause behind the non-descript message. So what might the 05: Do Not Honor mean? From our experiences analysing authorisation rates and working with issuers and schemes, here are some plausible explanations.

Insufficient funds in disguise

In probably half of the cases, 05: Do Not Honor is likely just an Insufficient Fund refusal in disguise. Reality is that some issuers (or their processors) do a poor job of returning the appropriate refusal reasons back to the merchants. This is both due to the use of legacy systems at the issuer side as well there being no mandates or monitoring by the schemes on this, letting issuers continue to use it as a blanket term.

By looking at the data from various banks, it is easy to see how “Do Not Honor” and Insufficient Funds can often be used interchangeably. Records that show a disproportionately high level of Do Not Honor and a low level of Insufficient Fund refusals would suggest one masquerading as the other. Given that Insufficient Funds is one of the most common refusal reasons, 2^nd maybe only to “Do Not Honor”, it makes sense that “Do Not Honor” by some banks may actually represent Insufficient Funds.

Refusal due to credential mismatches

Although the words “Do Not Honor” aren’t the most revealing, sometimes other data points in the payment response can be clues for the refusal. Obvious things to look at are the CVC response, card expiry date, and, to a lesser extent, the AVS response. For lack of a better reason, issuers will frequently default to using “05: Do Not Honor” as the catch-all bucket for other denials.

Suspicion of fraud

The most appropriate use of “05: Do Not Honor” would be for declining transactions due to suspicious activity on the card. In some cases, although the card is in good standing and has not been reported lost or stolen, an issuer might choose to err on the side of caution due to a combination of characteristics on a given transaction. For example, a high value transaction made at 3am from a foreign based merchant without any extra authentication, likely will trigger a few too many risk checks on the issuer side. These types of refusals will again unfortunately be designated into the “05: Do Not Honor” category, with merchants drawing the short straw. Even though issuers may be able to point to specific reasons why the transaction was refused, issuers have no way to communicate this back to the merchant.

Some astute merchants might point out that issuers should be able to use “59: Suspected fraud” in these cases. Some issuers however remap these 59 refusal reasons to 05 before sending the response to the acquirer to protect store owners in the POS environment and avoid uncomfortable situations with the shopper standing in front of them.

Collateral damage

Finally, the reality is that your likely not the only merchant that a given shopper interacts with. Regardless of how good your business is or how clean your traffic is, a shopper’s recent history with other merchants will influence the issuers decision on your transaction. For lack of a better reason, the catch-all 05: Do Not Honor refusal in some cases be seen as “Collateral damage”. If the shopper coincidentally just made a large purchase on a high-risk website or went on a shopping spree before reaching your store, there is the possibility that the issuer may decline the transaction at that moment in time. In these cases, there is unfortunately very little that can be done, except to ask for another card or to try again later.

Hopefully this helps shed some light on the possible reasons why ‘05: Do Not Honor’ is so dominant in the payment space and that there is no single reason for this response. Adyen’s advice to dealing with these refusals is to look at the data at individual issuer/BIN levels and from there, try to distil patterns particular to those bank’s shoppers.

The European funds industry still has major concerns over Brexit and the fear and uncertainty that comes with it, according to new research with European fund managers.

More than half of respondents (55%) say that Brexit continues to be one of the biggest issues facing the funds industry in 2018. However, the study, conducted by online board portal provider eShare with delegates at the recent FundForum International event in Berlin, also revealed the funds industry was generally optimistic about  prospects for the industry in 2018 and beyond - 82% believe that the funds market is generally buoyant despite political and economic affairs.

“The fund management industry has faced much pressure over the past few years, with new regulation intended to improve transparency adding many layers of complexity to governance and compliance programs,” said Camilla Braithwaite, Head of Communications, eShare. “But confidence amongst European fund managers remains high despite this, with Brexit the only main concern for many. However, with the major decisions over Brexit and its impact on financial services still to be made, fund managers are proceeding as normal until they know more and the industry is thriving because of it.”

The new regulations, such as GDPR and MiFID II, have undoubtedly affected the industry though, with fund managers increasingly aware of the risks that come with non-compliance. 84% of those surveyed felt that their organisation could improve the operations surrounding risk management and decision-making.

With fund managers facing tough decisions about compliance, investments and many other factors, the ability to be transparent about such matters was one of the most important things identified by survey respondents. 97% said that demonstrating transparency into decision-making is increasingly important for the industry.

As the pressure grows on fund managers to be compliant and well-governed, so the need for transparency increases too. 84% of respondents said that technology is the future for improving governance standards within the funds industry.

“Transparency is essential in modern fund management and demonstrating this is right at the top of the agenda for most fund managers, keen to reassure clients and regulators alike,” continued Camilla Braithwaite. “Technology can play a significant role in this, showing how decisions were reached and supporting governance and compliance requirements. The industry has woken up to the potential of technology to help in this way, and the research would suggest that the mood within fund management is positive.”

(Source: eShare)

With more businesses looking to finance the next chapter in their expansion and meeting dead ends, is it time to consider a different method.  Whilst traditional lending can help, more and more business are using Peer-to-Peer lending to ensure that when they need to take the next step of their growth they can do so without the constraints that can come with conventional lending.

This month, Finance Monthly had the privilege of speaking with Angus Dent, CEO and Jerry Gilbert, Commercial Director at strongly growing peer-to-peer (P2P) business lending platform ArchOver. Founded by Angus, together with COO Ian Anderson, in 2014, to date the company has facilitated over £60million in total lending and is fully FCA-authorised. Angus is responsible for developing the overall policy and strategy of the business and ensuring its delivery by the management team. On a day-to-day basis, he is also engaged with borrowers, high-value lenders and strategic partners. Jerry joined ArchOver in September 2017, to provide strategy and structure around ArchOver’s growing commercial activities.

Here they tell us about the optimistic atmosphere surrounding the company at the moment and the significant appetite for the way ArchOver lends.

Typically, what do companies use the finance raised through ArchOver for?

Angus: Our borrowers use the finance raised through our platform for a wide variety of things – no two businesses are alike, after all. They might need a cash injection to fund a bigger office, or to service a major new contract they’ve just won. Or they might be looking to refinance after finding that their existing facility isn’t willing to grow and change with them – we can help them to pay off their existing commitments and secure additional finance to fund their next stage of growth. For some companies, it’s used as day-to-day working capital, freeing up other funds for growth activities.

Jerry: The key point is that SMEs can’t achieve their full potential without the right financing.

For many of the companies that make it out of the start-up phase, financing can be hard to come by.

Many waste months or even years chasing down a single angel investor or debating back and forth with the big banks. SMEs’ great strength lies in their agility, and they need agile funding to match that. The P2P model makes the funding process shorter and simpler, and helps companies get on with the business of growing.

What are the risks of peer-to-peer lending?

Angus: It’s probably best to think about it in terms of the security provided rather than the risks involved. When you’re selecting a peer-to-peer investment or loan to make, you’d naturally want to know about that security that’s provided with it. At ArchOver, when we consider levels of security, we typically look at trade debtors and contracted recurring revenue, both of which are assets that offer good security, since both of them provide cash from which a loan can be repaid. In my opinion, when evaluating security, people would want to look at an asset that is designed to turn into cash - because this means that there’s a flow of cash, which will guarantee the repayment of their loan.

An asset such as property in contrast, is a very liquid asset and would not be as secure, since it could take years to sell a property and there’s not necessarily any cash that flows from it. It’s vital to evaluate how security fits with your objectives and with what you find acceptable.

Jerry: It’s also worth mentioning that ArchOver is quite unusual in looking at those two parts of the business. Many of our competitors in the peer-to-peer space and the traditional lending space will achieve their security from a personal guarantee which is in most instances attached to the company director’s property and has all sorts of connotations.

Angus: This should then make you question whether it provides any security at all - you’re lending to the business. Either the business can afford and service the loan or it can’t. What value does bringing additional assets into play have?

How do you evaluate the ability of a business to fulfil its repayment commitments?

Jerry: Evaluating a business’ ability to fulfil its repayment commitments is not a simple, one-off job. Here at ArchOver, the process covers the entire lifecycle of the borrower, from the moment they are in touch with our Commercial team, to when the loan is fully repaid.

Every prospective borrower must pass through our extensive Credit Analysis before their loan is made available to lenders on the ArchOver platform. The Credit team invests a considerable amount of time – on average four days – to fully review the potential borrower. Should the borrower be approved by the Team, the Credit Committee will review, and make the final decision. Once the loan has funded on the ArchOver platform, we monitor monthly both the asset value and the management accounts against forecast throughout the loan term. We also perform multiple on-site visits before and throughout the loan term. This allows us to get to know the business intimately – its challenges, its strengths and its weaknesses. We can continuously assess the borrower’s position, so we can identify and handle any new risks as (or preferably before) they arise within the borrower’s business. We believe we are the only P2P lender to conduct this kind of monthly monitoring.

Angus: We employ a traditional ‘Five C’ approach: Character, Capital, Capacity, Conditions and Collateral. Understanding a business is a complex, multi-dimensional challenge and we employ both quantitative and qualitative elements when reaching judgments. We have a detailed process we follow to deliver a number of key metrics so that our Credit Committee can take an authoritative decision on which companies should make it onto the platform.

Angus, how was the idea about ArchOver born?

Angus: Through our own experiences as entrepreneurs and directors, we realised how difficult it was to raise working capital in the range of £100,000 to £5 million. We also saw that those with cash were earning next to nothing in interest and that, for those potential investors, security was imperative. Our first thoughts of how to overcome these issues became the founding principles of ArchOver, and so we set out to support UK businesses and UK investors alike in a fair and innovative way.

What makes you different to other P2P lenders?

Jerry: In short, what makes us different is our human-touch. There is always someone available for you to speak to. Whether you are a borrower or a lender, we want to listen and engage with you so we can be as helpful as possible. Providing a personal service is at the heart of what we do.

More specifically, on the borrower side, we seek to facilitate lending in a way that is business-driven, business-focused and business-friendly.

Our loans are fixed amount, meaning there is no unpredictable facility fluctuation, and they are fixed-term and fixed-rate, allowing the borrower to plan ahead. Many of our borrowers have sought an ArchOver loan to help them exit an expensive and time-consuming invoice discounting facility, because we appreciate that a loan should be there to support a business, not to sap its resources. Similarly, we do not take personal guarantees, allowing directors to keep their business separate from their personal life.

Angus: On the lender side, we prioritise security without compromising interest rates. Our Credit Analysis is one of the most thorough in the sector, and we are the only platform to monthly monitor the business and security throughout the loan term. With the exception of our Research

• Development Advance lending service, our loans are secured with an all-asset charge over a borrower’s business, and all borrower revenues flow through controlled bank accounts owned by ArchOver. To further underpin security, our lending models leverage the value of the borrowing business’ assets. Our flagship ‘Secured & Insured’ model leverages finance against the company’s Accounts Receivable, where those Accounts Receivable are insured against late or non-payment. Our ‘Secured & Assigned’ model is secured against contracted recurring revenues, where those contracts are assigned to ArchOver.

In a time when interest rates are skimming along the bottom of the graph, we know how important it is to make your money work for you. ArchOver lenders can receive between 6 – 9%p.a., and on average earn a return of 7.3% p.a.

What are the company’s mission and values?

Jerry: Put simply, ArchOver exists to help businesses access the funding they need to grow, and to help investors make a secure, worthwhile return on their money.

We are committed to treating UK businesses and investors fairly. If a business has the assets to sustain borrowing, we want to give them the chance to get up and running quickly. We also believe that investors should be able to secure favourable returns without having to take on unnecessary risk.

We believe in transparency throughout the entire process. Our borrowers are never left in the dark (which is sadly a common occurrence with the banks) and our lenders have access to information sufficient to allow them to make an informed decision on which loans they want to invest in.

Last and most certainly not least, we are helpful, focused and flexible. We are here to help you achieve your business or investment goals.

Have your values changed over the past 4 years?

Angus: No. What has changed is the way in which we do things, not our ethos. We expanded our offering to lenders and borrowers by introducing our ‘Secured & Assigned’ model in January 2017, and have also introduced our ‘Bespoke’ model.

This means we can offer our funding solutions to a greater range of UK businesses, while maintaining security for lenders. For lenders, we are looking to introduce an IFISA early this year, alongside some other services. Watch this space!