Lending FAQ

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Failure rate and recovery of losses

What do ThinCats count as a failure?

A company that fails to repay its loan, has exhausted procedures to reschedule or recover outstanding amounts and is therefore in default.

What do you do to recover funds for secured loans?

Not only do we take specific security, we also normally take personal guarantees. In the event of a default our first call is on the specific security. Should that not be adequate then we would call on the personal guarantees. The personal guarantees would only fail if the individuals file for personal bankruptcy. There is one key exception to this and these are loans sponsored by Community Chest that offer tax relief in return for being unsecured.

From this, you can see that an initial loss may take many months and perhaps years to recover. In order to give some indications of the level of performance, the way that we calculate theoretical losses is to total those loans in default less amounts actually recovered less recovery expected in the next three months, this then leaves the potential loss.

Our Sponsors build up strong relationships with the borrowers and it is they who help if there are problems. If a borrower does default it may take several months to recover the debt but our security position should make that outcome likely.

Loans sponsored by Community Chest are deliberately unsecured in order to qualify for tax relief. The borrower still has the duty to repay the loan but the risks may be considered as greater. Community Chest loans are clearly marked as being unsecured.

What is your failure rate?

Please see the section ThinCats track record, found on our page dedicated to default rates.

Interest rates

How is the rate of interest decided?

There are two types of auction:

  • ‘Fixed Rate’, where the borrower offers a single fixed interest rate and the loan is filled on a first-come-first-served basis. There is no danger of early bidders being outbid by later, lower bids.
  • ‘Variable Rate’, where there is an auction for each loan allowing lenders to make offers to borrowers, which is more common. 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.

How is it calculated?

The interest rates quoted are per annum, calculated on the daily outstanding balance. For capital repayment loans, as 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 halfway point. This means that although the interest rate stays the same it will actually be on a smaller capital sum. It works like a mortgage, but in reverse.

Deposits, repayments and withdrawals

How are my funds held by ThinCats?

All of our lenders’ funds are held by an independent authorised body, Street UK Ltd, which is contracted to receive funds on behalf of the ThinCats platform, to disburse them as required to make loans and to collect repayments made by direct debit. Our contract with Street UK includes detailed provisions for Street UK to take over the orderly run-down of ThinCats platform in the event that we cease trading for any reason. This will ensure that our lenders will continue to receive all of the income that is due to them without any additional cost.

How can I pay funds into my Client Account?

Following initial registration, we allocate each lender with a unique membership number starting with “BLN-P0”. We contact lenders via email once this number has been assigned with details on how they can transfer money into their client account. It is essential that you quote this membership number in full when depositing funds. Failure to do so may result in a delay in allocating your payment.

If you have lost or deleted this email and need a reminder on how to pay funds into your client account, please contact us at admin@thincats.com.

When do deposits show in my account?

Funds are normally available within 2 working hours of receipt.

First deposit anti-money laundering checks

When you make your first deposit we will undertake anti-money laundering (AML) checks to confirm the details of your bank account. Please note this account must be in your own name. You may be required to provide additional documentation to support these checks.

Once the AML checks have been passed, your first deposit will be credited to your ThinCats account. Because of this process, your first deposit may take longer to be credited to your account than the time frame stated for regular deposits.

When do repayments show in my account?

Payments are collected from borrowers’ account via Direct Debit so that a fixed repayment date can be scheduled for the duration of the loan term. If a payment due date falls at a weekend or on a bank holiday, then the borrower is debited the first working day after the due date, but not before.

Once payments have cleared successfully (next working day following payment date), ThinCats lender’s accounts are credited within two working days.

In the event of being unable to collect payments due to a bank error, the problem can generally be rectified within 3 working days. In this case payments are not usually received until at least day four following the original payment date. Once successful payment is collected, lenders’ accounts are credited in the normal process.

How do I withdraw money from my account?

Lenders who wish to transfer uncommitted funds can send us a withdrawal request through the ThinCats system. Once we have received your request our admin team will process the withdrawal and the funds should be with you within 3 working days. Except under special circumstances and by prior arrangement we can only return your funds to the bank account they came from.

How can I get my money back if my circumstances change?

Lenders who wish to turn their investments back into cash may sell their loans on the secondary market. Due to the nature of the Secondary Market the price you will receive, and the ability to sell the loan, will depend on the supply and demand at the time that you wish to sell your loan (that is, there need to be willing buyers of your loan). Additionally, not all loans are deemed suitable for sale on the secondary market for a range of reasons (such as missed payments).

Loan Grading

What gradings are ThinCats introducing?

We have introduced a two-tiered grading system for all loans on the ThinCats platform:

– Credit quality, represented by a one-to-five-star grading
– Security quality, represented by a one-to-five-padlock grading

This provides two ways of judging any loan: the ability of a company to service its loan obligations, and the value of the underlying security relative to the size of loan.

Why have you introduced this grading?

We are introducing loan grading to provide our lenders with another way to evaluate a loan. Alongside the existing loan documentation, which gives an in-depth overview of each loan, these two gradings are there to support your investment decision. The decision as to whether or not to invest in an individual loan will always rest with the investor.

How reliable are these gradings?

Each component used to construct the credit grade has been subjected to extensive testing against proprietary analysis and the wider UK SME universe – some 3,000,000 firms, of which 500,000 are borrowers. While the grading system has been proven to represent relative risk accurately over multiple datasets, lenders must make their own judgement when lending on the platform. The grades do not represent recommendation of specific loans by ThinCats.

What do the credit grading Stars signify?

The Stars signify the relative likelihood of the rated company to default, and therefore of the riskiness of the loan- five Stars being the highest grading and one Star the lowest.

What is the credit grading methodology?

This model combines a financial perspective on each borrower, which is driven by leading credit-agency scores, with additional and non-financial proprietary metrics, proven over 25 years of analysis to add an additional layer of insight and predictivity of default. The methodologies used to separately refine both the financial and the non-financial perspectives from the original inputs, and then to combine the two perspectives, have been validated by observing the actual patterns of insolvencies across very large datasets (3m UK firms, of which 0.5m are SME borrowers).

What do the Padlocks signify?

The security grading is represented by Padlocks and is based on the ratio of loan amount to the value of secured assets, at the time of valuation. The highest level of grading (five Padlocks) runs to considerably more than 100% security value over the loan and one Padlock below 25% security value over the loan. These ratings take into consideration certain industry factors and the ability to recover those assets subject to the security, in the event of a default.

Will the gradings be periodically revised over the loan term?

There are currently no plans to do this.

Will these apply to loans on the Secondary Market?

Gradings are applied to each loan at the time of the original auction. We have no plans, as yet, to periodically update each loan following the initial grading. Therefore, you will see that only new loans will carry the grading and the assessment of loans on the Secondary market will remain as before.

All the safeguards from before are still in place: if ThinCats believes that there is any cause for concern with a loan, we will not allow it to be traded on the Secondary Market. If it is already being traded on the Secondary Market, we will suspend its trading until any concerns are resolved.

All loans (old and new) will continue to be prefixed with a secondary market loan status code.

Secondary Market

What can be traded on the Secondary Market?

All lenders should undertake their own due diligence prior to bidding on the Secondary Market. Not all loans can be traded on the Secondary Market for a range of reasons. A key exception to this are ThinCats Lending Club (TLC) loans, which may potentially contain impaired loans but can still be traded. Information about the status of each loan and the breakdown of the mix of loans within any TLC can be found in the VIP Dropbox.

Find out more about the Secondary Market

Overseas lenders

Can I be an active member from outside the UK?

Members have to be a UK resident and have a valid UK bank account. However if you do not meet this criteria, you may otherwise be permitted to become a member by written agreement from us in accordance with the Platform’s policy then in force and applicable law and regulation. If you have any questions regarding this please contact account.opening@thincats.com and we will be happy to help.

Regulation

Are you regulated?

ThinCats is currently regulated by the Financial Conduct Authority (No. 660050) under their interim permission for Loan Based Crowdfunding businesses. It is important to recognise that crowdfunding/peer to peer lending is NOT covered by the Financial Services Compensation Scheme. ThinCats has a Consumer Credit Licence and is registered with the Office of the Information Commissioner for data protection purposes.

Sponsors

What do the Sponsors do?

The Sponsors are teams of financial services experts who work closely with borrowers throughout the loan life cycle. The Sponsors assess applications from potential borrowers, help them to bring their proposal to auction, prepare detailed loan information packs for lenders to read, answer any questions lenders might have, and monitor the loans if the auction is successful. We carefully consider who we wish to work with as a Sponsor, and only those who have passed our due diligence can submit loans on our platform. We only work with Sponsors who have passed our own due diligence. More details about the individual sponsors are available here.

How can I tell how good they are?

Each sponsor has a biography on their own page of the website. Statistics relating to the number of deals they have put forward and the value of the loans can be found on the sponsors summary page. 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.

Borrowers

How do you assess the borrowers?

Potential borrowers are not allowed onto ThinCats 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, their company accounts, a review of the security available and the borrower’s ability to repay. The information gathered by the Sponsor is made available to lenders to download as an information pack, found under each loan on the platform.

Fees

Do you charge any fees for lending?

We do not charge a fee for registering as a lending member or for lending money.

Do you charge any fees for selling a loan on the secondary market?

We charge 1% of the capital outstanding (rounded to the nearest whole pound).

Do you charge any fees for recoveries?

Recovery fees of 15% will be charged to the borrower, in the event of the borrower entering into a formal insolvency process. Where there are insufficient realisations from the borrower to repay the outstanding capital, accrued interest, and charge in full, a scale charge will be applied based on the recovery made as set out in the Platform Use and Terms and Conditions (see 17.2.5). This will apply to all loans listed on the primary market from the 1st March 2017.

Tax

Does ThinCats calculate and deduct income tax on behalf of lenders?

No we do not. It is each member’s own responsibility to declare any money earned through ThinCats to HMRC. You can find out how much interest you have earned in the tax year from your dashboard by setting the correct date ranges and looking at your repayment summary.

Do loans qualify for Enterprise Investment Scheme (EIS) Tax Relief?

No. EIS is intended to provide compensation for the relatively high risks involved with equity investments in unquoted companies. ThinCats does not offer equity investments therefore it is not applicable. Tax relief very similar to EIS is available on loans sponsored by Community Chest but these are very different from ThinCats loans by being unsecured and having a social or community benefit. Community Chest loans should be regarded as higher risk investments, suitable for experienced investors who are able to withstand losses. You can find out more about tax relief on loans here.

Risk

What are the risks of peer to peer lending?

Investment with ThinCats involves making loans to small and medium sized businesses and your capital is at risk. If there is security on the loan you are entitled to receive a portion of your capital back, depending on the quality of the security. Unlike other types of investment, the value of an investment bought on the primary market will not go down or up in value depending upon the performance of financial markets; however your capital is at risk. You will never receive more back than the interest that has been agreed but you may receive less. The only reason that you may not get all of your money plus interest back is if the borrower fails to repay as agreed. Read more about risks.

What would happen if the ThinCats platform were to fail? What would happen to existing loans?

The Peer to Peer Finance Association and the Financial Conduct Authority both require members to have adequate provision in place to protect investors by ensuring that existing loan repayments are collected and distributed to lenders in the event of the failure of Business Loan Network Ltd (‘BLN’) or the ThinCats platform itself. For more information on how this will be managed please refer to our prepared documentation.

Pensions

Can my SIPP make loans?

Yes it can, providing your pension provider allows it. View our page lending through a pension fund.

Syndicate updates

What is a syndicate?

The syndicate is the group of Lenders that together provide individual Loans to a Borrower under the Loan Agreement.

What is a syndicate update?

A syndicate update is when we share information with syndicate members who are part of a specific loan. We communicate updates via email and only send it to current investors of the loan. Syndicate updates are private and confidential and are strictly between ourselves and the current loan syndicate.

Why do we issue syndicate updates?

We issue these updates when we have news about the borrower that needs to be shared. Examples of when an update is issued:

  • The loan is to be repaid early
  • A syndicate vote is required
  • The borrower has run into difficulty with repaying their loan
  • There has been progress with the recovery process

What is a syndicate vote?

A syndicate vote is when an important decision regarding how to proceed with a loan is needed. Here at ThinCats we believe syndicate members should have the opportunity to vote for the best course of action given their own personal circumstances. What we do is explain each course of action and offer investors the opportunity to vote on which course of action they believe is best. Each investor is allowed to vote once and their vote is weighted based on their outstanding capital in the loan. After a period of time the votes are tallied and a syndicate update is issued with the results of the vote. On occasion ThinCats may take actions it considers in good faith to protect the interests of all syndicate members and not proceed with a syndicate vote.

Is there any way to check if a syndicate update has previously been sent for a loan?

From the 27/03/2017 when syndicate updates are issued the applicable loan Q&A’s will be updated to highlight that an update has been distributed. We are aware that on a number of occasions lenders have not received copies of syndicate updates and therefore may be unaware syndicate updates have been issued for their applicable loans.

If you do find that a syndicate update has been issued upon reviewing loan Q&A’s but have not received it, please contact the admin team directly who will be happy to assist. The admin team can be contacted via the internal messaging system or by emailing admin@thincats.com.

ThinCats loan syndicates

How are the investments made by the platform held?

Due to the nature of the auction process and the possibility of a lending syndicate involving hundreds of members, ThinCats set up an independent company, ThinCats Loan Syndicates Limited (TLSL) to act as a security trustee and agent who signs documents and acts on behalf of the syndicate.

Is ThinCats Loan Syndicates Limited a registered company? Who are the directors?

ThinCats Loan Syndicates is registered in England and Wales (No. 07341131) as a ‘not for profit’ company limited by guarantee. The company has six directors, three executives from Business Loan Network Ltd and three representative lenders.

Website security

What encryption is used on the ThinCats website?

Connections made to the ThinCats website are encrypted with a 256-bit encryption.