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Credit where credit’s due


At LendingCrowd, we work hard to make investing with us as easy as possible. When you invest on our platform, you’re helping to fund the ambitions of established and successful British business.

In the second instalment of our Investing toolkit, we explain how the experts on our Credit Team use leading-edge technology to decide which businesses will be able to use our platform to raise funds.

We are a fintech (financial technology) business, with a proprietary risk band modelling tool developed by our in-house team, but the personal approach is still important – a human always makes the final lending decision.

We strive to understand each business that we lend to. Knowing why the borrower needs a loan and understanding how they will use money gives our Credit Team flexibility in making decisions. Understanding each borrower’s needs helps us to build strong, mutually beneficial relationships for the longer term.

Assessing applications

Affordability is key to our lending decisions, so we focus on a borrower’s ability to repay their loan when assessing their application. We also look for proven management ability, a strong and considered business plan, and analyse the borrower’s assets and liabilities.

We then allocate a final score and accompanying Credit Band (ranging from A+ to C+), which guides the interest rate that the borrower will pay on their loan. We do not approve any applications that fall below a Credit Band of C+.

Between January 2016 and March 2019, we only paid out loans to 8% of borrower applications. We believe this illustrates the responsible and cautious approach we take to credit risk assessment. However, it’s important to remember that a business may not be able to fully repay its loan, and this can be as a result of circumstances the borrower faces further down along the loan term that cannot be predicted at the stage of application.

We seek to develop effective security arrangements for each business loan. Security reflects the borrower’s circumstances and the loan size requested. We take a range of security types to protect investors’ interests but will be mindful of the borrower’s circumstances and the nature of their business.

Managing risk

As with any investment, your capital is at risk when lending to businesses. You should only invest in business loans if the risks match your appetite.

There’s no such thing as a risk-free investment, but diversification is the easiest way to manage risk and improve your opportunity for better returns. We make it easy to instantly create a diversified portfolio of business loans with our Growth Account and Income Account, both of which can be held within our Innovative Finance ISA for tax-free returns. Please note that tax treatment depends on the individual circumstances of each investor and may be subject to change in future.

With our Growth Account, capital and interest repayments are automatically reinvested in more loans, further increasing diversification over time. Our Income Account works in a similar way, with the key difference being that interest repayments are paid into a separate account as cash for investors to withdraw with no charges.

For more sophisticated investors who have the time and knowledge to review individual borrowers and build their own portfolio, we offer the Self Select Account. Self Select investors can bid on loan auctions in our Loan Market, where they can also buy parts of existing loans from other investors.

Please remember that your capital is at risk when lending to businesses. LendingCrowd and its products are not covered by the Financial Services Compensation Scheme.

Article author

Gareth Mackie

Gareth Mackie

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If you invest through LendingCrowd you should understand that your capital is at risk.

LendingCrowd is the trading name of Edinburgh Alternative Finance Limited, Company Number SC468392, authorised and regulated by the Financial Conduct Authority (Firm reference number 670991). LendingCrowd and its products are not covered by the Financial Services Compensation Scheme.

Read more about the risk involved when investing and borrowing.

The company's registered office is 23 Manor Place, Edinburgh, EH3 7DX.

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