LENDERS FREQUENTLY ASKED QUESTIONS

Last updated: 2nd November 2011

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Q. Can you advise if the intrest rates set are per year or for the term of the loan. ie at 12% would this be 12% pa or 6% pa if the loan was for two years?

A. The interest rates quoted are per annum calculated on the daily outstanding balance. Because the loan is paid off in equal monthly instalments you will be receiving part of your capital back each month and so the size of the loan will reduce each month and you will have received more than half of your money back before the half way point. This means that although the interest rate stays the same it will actually be on a smaller capital sum. It works just like a mortgage (but in reverse). To achieve the full rate of interest on your entire portfolio you will need to keep reinvesting capital as it is returned to your client account and our minimum loan amount of £1,000 does mean that smaller investors will find this harder to do efficiently. We think that you will need to be lending a total of about £10,000 through ThinCats if you want your montly income to be above the minimum investment of £1,000.

Q. The Interest rates on ThinCats appear to be higher than those available on some P2P lending websites yet you are offering secured loans, can this be right?

A. Yes, even though ThinCats loans are always secured we have been achieving interest rates for lenders averaging over 10% whilst the rates on other 'platforms' have been declining to less than 7% (even less after fees are taken into account). There are two reasons for this; firstly we have had a relative shortage of lenders so there is less competition between them for the loans and until recently interest rates were not being driven down in auction as much as they might otherwise be. Secondly, we are making bigger loans and competing with the banks in their traditional market, we are not competing with the P2P lenders for simple unsecured loans to businesses with high credit ratings, our approach has been to seek quality rather than quantity and get to know our borrowers well before offering a loan for auction. Because of the major problems faced by the banks they have been turning down many very good businesses that need funding to expand. This means these businesses are often prepared to pay a higher rate for the funds they need. Of course, these two factors are not permanent; the banks will eventually return to their traditional market and the high interest rates with security is attracting lenders to ThinCats at an increasing rate, so competition between them will increase. This means that early lenders will get exceptional returns relative to the risks involved and we expect that our average interest rate will eventually reduce to about 8 or 9%. Interestingly, in our first year of operation no offer of a loan was declined because the interest rate was considered excessive by the borrower.

Q. I live overseas and would like to lend through ThinCats, is that possible and how do I get round the problem that yourSign-In requires me to enter a UK Postcode?

A. We can accept funds from overseas and remit them as required back to your acount but we need to work in £ Sterling and cannot accept foriegn currency. We would expect you to cover any costs involved in transmitting funds. Our software was designed to only accept UK based lenders and will take some time to modify (because of other priorities) in the meantime please fit in your address to the available spaces as well as you can and enter "LE67 8UJ" as your postcode. If you still have problems please send an email to admin@thincats.com including your name and address and we will help you.

Q. You imply the founder members are also lending members but it is not clear whether founders themselves are part of current lending syndicates. If one of the original sponsors and/or lender directors are participating in a new loan it would reassure other investors. What information on whether or not such lenders are currently in a syndicate is available?

A. All three of the founders have made loans, indeed as at 1st July 2011 the three founders were responsible for just over 45% of all the lending made and at least one is in each loan syndicate (without any deliberate plan to do so). Obviously as the loan book grows the proportion provided by the founders will reduce but all three of us have plans in hand to lend more through SIPPs. For information Paul Meier's SIPP has the bidding alias psmSIPP and Kevin Caley's is KCSIPP these can be spotted during an auction and in the auction results available in the archive Dropbox (available only to lending members who have committed funds to ThinCats).

Q. How can I pay funds into my Client Account?

A.Please be aware that we allocate each member with a unique reference number which will start with "BLN-P00". You will have been notified of that number in an email when you joined. In order to ensure that your funds end up in your personal client account please make sure that you always quote that reference when depositing funds. There are two ways to get money into your Client Account: (a) A transfer by internet banking; to do this you will need to use these details: Account Name: “Street UK PLD A/C”, Bank: Barclays, Sort Code: 20-07-71, Account Number: 93019365, Please also Quote your reference number. (b) by cheque made payable to Street UP PLD A/C and posted to: Street UK, 12-14 Regent Place, Hockley, Birmingham. B1 3NJ. - Please include a note with your name and address and indicating that the funds are for your BLN (or Business Loan Network) Client Account. When you register as a member we will send you an email within a few hours including your unique account number. It will help to get your funds into the correct account if you quote that number when sending funds. Because we operate the accounts manually it always helps to send us an email as well, letting us know that you have sent funds.

Q. I don't want to lend for 5 years or more because I don't want my capital tied up for that long

A. In response to comments from Lender Members we are actively seeking shorter deals of 3 years or less but don’t forget that most Thincats Loans are repayable monthly so you will be getting your capital back in instalments each month. You don’t have to wait 5 years for a ‘lump sum’ payment, it should be fully repaid by then. To download a spreadsheet that helps you calculate the monthly repayments: CLICK HERE.

Also, because there are no penalties for early repayment, some loans are likely to be repaid early. We are working on establishing a full secondary market by the end of 2012 Q2 so that if you want to sell on one of your loans you will be able to auction it to other members at any time. We expect this secondary market to be very active because it also provides a method of creating an instant portfolio of loans. Existing loans with a track record of repayment on time should be quite attractive to other members because the transaction will be instant wheras there could be a 3 week period between the end of a loan auction and completion because of all the documentation associated with taking security.

Q. Is the Business Loan Network Ltd FSA Regulated?

A. No, we have taken expert advice on the subject from Eversheds and we believe that Business Loan Network is not an activity covered under the Financial Services and Marketing Act (FSMA). However we are working with Innvotec, an FSA Regulated Fund manager to provide a managed fund for those who do not have the time or experience to make their own investment decisions and "ThinCats Bonds" will be available from early 2012. Early in 2012 we are launching a managed retail fund in conjunction with FSA regulated fund managers Innvotec. ThinCats Bonds are aimed at investors who do not have the time or the experience to make their own investment decisions for more information about ThinCats Bonds by visiting the Innvotec website or by reading the 2 page summary document..

Q. What information will I get about the Borrower?

A.The Borrower will be not be allowed onto the Business Loan Network unless they have the support of a Sponsor willing to put their reputation on the line. The Sponsor will undertake a detailed investigation including a review of the Borrower’s bank account, a review of the security available and the Borrowers ability to repay and will write a report of the type that a bank might produce internally as part of its decision making process. We have found that this normally involves 3 or 4 meetings with the management team of the Borrower and gives our experienced ex-bankers several hours to get to know the individuals invollved. This process is unique to BLN as other peer-to-peer lending websites rely on credit searches and desk-based research. It is possible because our loans are much larger and justify a very professional approach. The information gathered by the Sponsor will be made available to Lender Members to download. There is one exception to this; where the Borrower is concerned that the Business Plan or other documents may reveal important trade secrets the Sponsor will remove that information but will explain what that information was and why it has not been made available. This type of information is usually an important consideration when making an equity investment but when considering a loan the focus should be on the borrower’s ability to repay the loan and as far as the technology is involved it is only necessary to know that the customers will buy and pay for the products in the quantities needed, lenders do not normally need to know how the product actually works.

Q. How Can I find information about the previous auctions and loans already made?

A. All lending members who have deposited funds in their client account should have been sent a link to the 'DropBox' folder in which the results of past auctions and all the related Information Packs are stored.

Q. How is the rate of interest decided?

A. There is an auction for each loan allowing Lenders to make offers to Borrowers. Each lender decides the amount they wish to lend and the interest rate they require. The software automatically selects the lowest interest bids to make up the syndicate. Each successful lender will get the rate that they asked for and the Borrower will get an offer of the weighted average rate plus a ‘fee’ of 1.5% of which 1% contributes to the cost of creating the syndicate, preparing the legal documents and managing the completion process and 0.5% is used to pay the Sponsor to monitor the Business. Whilst base rates are stable and low we expect deals to be struck at fixed rates. This gives certainty to the Borrower for budgeting purposes and is far easier to calculate. However, for longer term loans and if interest rates start to change frequently it is likely that loans with interest rates linked to base rate will become more common.

Q. Who makes the lending decision?

A. Lenders always make their own decision, whilst information is provided and Sponsors will make comments, no recommendations or warranties are provided by Business Loan Network Ltd or any Sponsors and no responsibility is accepted by them in the event of any losses. The Borrowers will be warranting the information provided and providing security. Lenders must take this risk into account when deciding on the interest rate they require and making their lending decisions. They should take independent advice if they are in any doubt. If you are not comfortable in making your own investment decisions you may wish to consider investing in ThinCats Bonds where the investment decisions are made on your behalf by an FSA Regulated fund manager. For more information about ThinCats Bonds visit the Innvotec website or read the 2 page summary document..

Q. Who are the Sponsors and how will I know how good they are?

A. The Sponsors are generally very experienced former bank managers. Each will have been accredited by the Business loan Network and have a ‘biography’ on their own dedicated page within the thincats.com website together with statistics relating to how many deals they have put forward, how many have successfully raised the loan they were seeking and how well they are now repaying. There will also be feedback from lenders and borrowers. All this information will build into a ‘reputation’ which the Sponsor will be very keen to preserve. The system will operate in a similar way to a seller’s reputation on eBay and a good reputation will be jealously guarded because it will make their deals more attractive to Lenders and therefore more likely to succeed in raising the loan. In turn, Borrowers will seek out the best performing Sponsors and be prepared to pay a premium fee to get them. Sponsors soon learn to be VERY selective in picking their clients and this will provide an effective quality control system. Lenders are encouraged to leave feedback on deals and ask questions of the Sponsor. They are also encouraged to read previous feedback and comments on the Sponsor when assessing an opportunity. We believe that Lenders will begin to trust the judgement of some of the better Sponsors as everyone gains more experience and will be more interested in Lending to the clients of those Sponsors.

Q. Who pays the ‘Sponsors’ and do they recommend investments?

A. The Sponsors receive a success fee from the Borrower, paid out of the loan, normally between 2% and 6%. They will also receive 0.5% of the reducing balance per year to provide a monitoring service. All Members of the Network (Lenders, Borrowers and Sponsors) will be aware of all the fees involved. The Sponsors work on behalf of the Borrower to describe the deal as objectively as possible and do not give any investment advice to the Lender

Q. Why should we rely on what the Sponsors tell us?

A. Although the Sponsors job will be to help the Borrower (their client) put forward the best possible case, they will not want to risk their reputation by allowing any inaccuracies or important omissions to get through because sooner or later it will reflect badly on their reputation. Sponsors are entirely free to reject Borrowers (without any reason or record of that refusal) and if a Borrower cannot find a Sponsor prepared to take them on, they simply cannot access the Business Loan Network. Any deal will also have to be aproved by our 'Risk Committee' who will set standards for the security required.

Q. Who arranges the legal documents?

A. This is all part of the Thincats Service based upon a set of standard documents specially prepared by leading solicitors Martineau. However the standard documentation only covers standard deals and security. More complicated deals will require bespoke agreements and involve additional costs which will be paid for by the Borrower out of the Loan.

Q. How do I find out about the Opportunities that might interest me?

A. All the current opportunities are featured on the private area of the website once you have logged in. We alert all lending members by email as soon as any new opportunities are posted.

Q. How do I actually make a loan?

A. Lender Members enter the Thincats.com website private area and review the opportunities available. They download any documents that they wish to review and ask any questions they wish to put, by email. Once they have selected a target company they transfer sufficient capital into their client account to meet the bids they are considering making. Bids are not accepted unless the funds are already in the client account. Once the auction is over the Borrower is made the offer of a loan at the weighted average interest rate plus the BLM fee and if they accept the offer BLN prepares the documents for signing. Lender Members sign a detailed membership application form providing a mechanism for an agent to sign the syndicated loan agreements on their behalf. This means that in order to join a lending syndicate all they have to do is have the funds on deposit and make a successful bid. Everything else is done without any further action on the part of the Lender. Bids must be in round thousands of pounds between the minimum of £1,000 and the total amount of the loan requested (the maximum loan size is £3m).

Q. How do I get the money back?

A. The Thincats/Street UK ‘Back Office’ system automatically collects loan and interest payments each month by direct debit from the Borrower and allocates the income to the client accounts of members of the syndicate. It also produces an electronic statement for the Borrower and each Lender so they know how much has been paid. Lenders may transfer uncommitted funds out of their client account at any time by sending an email request. Because the loans are usually simple repayment with interest the lender gets income from the second month. The back office system is provided by Street UK, a very experienced organisation that has been undertaking this work on behalf of other public sector and Community Development Finance Funds for several years.

Q. What happens if the borrower stops repaying the loan?

A. We have a well established and proven system of following up loans that are not being serviced properly and of course we can call in the security if necessary. Decisions on what action to take are made by the lending syndicate and we will co-ordinate the decision making process and implement them on behalf of the syndicate. We will keep you informed, maintain pressure on the Borrower and suggest possible courses of action which might include rescheduling the loan, taking court action, using a debt collection agency or selling the dept to a specialist for the best price we can get. Further information about this process is included in the Terms and Conditions.

Q. What Happens if Business Loan Network Limited Stops Trading?

A. BLN is responsible for operating the auction software and website and managing the process of making new loans available but is not a party to the loans themselves so if BLN fails for any reason the loans will still be repaid. The only difference will be that there will be no new auctions unless a new organisation can be found to take on the running of the business. Lenders are making loans to each Borrower directly and not through BLN but the Syndicate is represented by a company limited by guarantee "Thincats Loan Syndicates Ltd" which acts as a trustee and agent for Lenders. It is non-trading and does not even have its own bank account so that there is no reason why this company should fail. There are six directors of Thincats Loan Syndicates Ltd; the three founders of the Business Loan Network and three Lender Members who have also made an equity investment in BLN Ltd. They are not paid for acting as directors and their only role is to look after the syndicate Members interests. In the event of BLN failing It is their responsibility to make sure that the syndicate members interests are protected. They are all Lender Members as well, so it is in their own interests to ensure continuity. Thincats Loan Syndicates Ltd Directors must always ensure that at least one of them has NOT made a particular loan so that that person can act impartially if there is a conflict of interest. More details are provided in the Terms and Conditions.

Q. Can I visit the company or send someone to check on my behalf?

A. This is possible, subject to time constraints and geography and providing the amount you are thinking of lending is a substantial proportion of the loan being raised.

Q. Can we ask questions or post comments about deals?

A. Yes, there is a system allowing open electronic messages and displaying the replies for all Members to see and you will also have the contact details for the Sponsor so you can email or telephone them directly.

Q. Can I get my money back quickly if my circumstances change unexpectedly?

A. This is potentially the greatest shortcoming of the Business Loan Network in comparison to a bank deposit account because Lenders cannot get early repayment on demand. We are working on a sophistcated secondary market which we expect to be available by mid 2012 and this will provide liquidity when needed.

Q. Do loans qualify for Enterprise Investment Scheme Tax Relief?

A. No they do not; EIS is intended to provide compensation for the relatively high risks involved with equity investments in unquoted companies. Thincats Loans are intended to be far lower risk and although other lending platforms have lobbied for loans to be given such generous tax incentives for their unsecured loans we do not think that it is appropriate. In our opinion such tax relief should be limited to equity investors.

Q. Can I be an active member from outside the UK?

A. Yes, geography is not an obstacle.

Q. Can my SIPP make loans?

A. Yes; this is already one of the most popular ways of lending through BLN because of the tax relief available (c. 30% of all lending is through a personal pension).

Q. Is there any way of assessing appropriate interest rates in comparison with other investments?

Q. How risky are these loans compared to business angel equity investments and putting my money in a bank?

A. There is no doubt that there is significantly more risk in lending directly because a bank is providing its own guarantee that you can get your money back and there are also Government guarantees in place in case the bank fails. Depending upon the type of deal you select and the way in which your money is spread across a number of loans the overall risk should be modest and much lower than equity investments in the same companies. Secured lenders get priority over shareholders if the business fails and you will also be receiving repayments and interest every month whereas a shareholder must wait for several years until an exit is found. Although in theory we can call in the security if a business fails this is a last resort. Borrowers treat secured loans very differently from unsecured ones because the consequences of not meeting the repayments on time are far more onerous. In general the directors of a borrower might be expected to give secured loan repayments priority over such things as their own salary but an unsecured lender will be much lower on their list of priorities. The Zopa website which deals with small unsecured loans to individuals achieves a low single figure percentage failure rate and we aim to operate in a lower risk market, undertaking considerable due diligence and taking security. However there are no certainties with any investment and some losses should be factored into your calculations.

Q. We are interested in larger loans (£1m or more per company) can we get exclusive access to deals and keep them all to ourselves?

A. Yes, please see: Opportunities for larger lenders.

Q. Is the Business Loan Network unique?

A. As far as we know ThinCats.com is the ONLY 'direct lending' website that offers properly SECURED loans operating anywhere in the world.