Lendy Ltd ("Lendy") operates an electronic system in relation to lending (the "Platform"), which enables investors to invest in loan contracts with borrowers within a peer-to-peer lending environment.
Peer-to-peer lending carries a degree of risk to your capital, although we reduce this risk to our investors by taking asset security on every loan. Each loan contract is between each investor and the borrower of the loan and Lendy will act as agent on behalf of the lenders in relation to the loan contract. Each investor is allocated 'loan parts' representing their investment.
The Financial Conduct Authority (FCA) does not prescribe how we should address or disclose the risks relevant to lenders on the Platform, nor the level of diversification investors should seek to mitigate risks, but does require us to ensure all information we provide to users of the Platform is fair, clear and not misleading.
While diversification is important, you should keep in mind how much risk you're prepared to accept on your money.
Credit Risk refers to the risk that a borrower may not repay a loan and that the lender may lose the principal of the loan or the interest associated with it.
Unlike traditional peer-to-peer lending companies, the Platform only participates in lending secured against tangible assets such as UK property.
Our credit assessment will assess whether the property being charged provides an adequate level of cover for the total capital and interest costs due under the peer-to-peer loan contract and for the proposed term.
As with any investment, it is good practice to spread your investments across many different loans to reduce the exposure to, and the risk of, a single investment.
Diversification means the ability to spread risk by investing in more than one loan and choosing different areas such as: geographical location, length of loan, loan interest rate, type of borrower, loan to value (LTV) and interest status.
Investors pay their capital into a segregated Client Money bank account operated by Lendy under strict FCA rules and these unallocated investor funds are held in trust on your behalf by Barclays Bank PLC. Your money therefore does not form part of our assets and would not be available to creditors in the event of our insolvency.
Once you have invested in a loan on the Platform, your invested capital becomes due and repayable to you only at the end of the loan term, unless you utilise the Secondary Market (the risks inherent to which are described below).
In the event you should suffer a loss, peer-to-peer lenders on the Platform are not entitled to compensation from the Financial Services Compensation Scheme (FSCS).
However, you may make an application to our fully discretionary Provision Fund for compensation if your initial investment cannot be fully repaid due to a shortfall in the sale of a security.
As with all peer-to-peer lending activity, the biggest risk posed to investors is the borrower not repaying the loan on the due date; this means that your capital is at risk and you may not receive back all your investment.
Before the Platform agrees to list a loan, Lendy makes identity, fraud and credit checks of a borrower and assesses both the affordability of the loan and the strategy for repaying the loan.
If a borrower doesn't make the appropriate repayment at the end of the loan, the loan is then considered non-performing unless, on behalf of all lenders, Lendy has agreed to extend the loan formally, to make some other alternative refinancing arrangements, or to allow a further informal loan period of up to 180 days (the "Tolerance Period"). Formal loan extensions longer than a month require prior approval by our Credit Committee.
If a loan becomes non-performing we will move it to the NON-PERFORMING LOANS page on our website and provide an update by email to make you aware of the position, explaining our next steps to manage the debt.
In order to realise the capital required to repay investors in the loan, Lendy (acting on behalf of Saving Stream Security Holding Limited) will either arrange for the asset that is held to be sold or auction the property subject to the legal charge.
As mentioned above, you can make an application to the Provision Fund for compensation if your initial investment cannot be fully repaid due to a shortfall in the sale of the security.
For the duration of a loan's term, other than when you have put a loan part up for sale, the Platform ensures you will receive interest in monthly instalments into your Lendy account as we deduct the whole of the loan term's interest from the loan advanced to the borrower.
The interest gained upfront from the borrower is held in trust by Lendy in a separate bank account.
If a borrower does not make the appropriate repayment at the end of the loan term, interest will continue to accrue during the Actual Arrears period until the loan is repaid.
All interest due to lenders will be repaid on the sale of the security, subject to the sale proceeds being sufficient to pay both the capital lent and any outstanding interest.
No application can be made to the Provision Fund for compensation if some or all of the outstanding interest cannot be paid due to insufficient proceeds from the sale of the security.
Saving Stream Security Holding Limited will act as security trustee on behalf of lenders in relation to any security held in respect of a loan and will also enforce any security on behalf of lenders, under instruction from Lendy.
There is a risk that the security may provide inadequate cover for the total capital and interest due under the peer-to-peer loan.
Should you need access to the capital you have lent, before a borrower is due to pay it back, you may use our Secondary Market facility to make all or some of your loan parts available to other investors.
You will continue to be the lender for the loan part until it is sold but you will stop accruing and receiving interest during the period it is for sale.
Once sold, the associated capital is credited to your account and treated as unallocated investor funds until such time as you invest in another loan or withdraw it.
Selling a loan part on the secondary market relies on another investor buying that loan part. Although loan parts can sale within days, we cannot guarantee timescales or delays. Part loans are sold par value and Lenders cannot apply a premium or discount to the outstanding value. Loans that are closer to maturity can have an increased risk to your capital.
If Lendy Ltd were to stop trading for any reason it would present some risk to you in that we may no longer be able to manage borrower repayments back to your account.
We administer our loans in a way that ensures the arrangement fees payable in relation to these loan contracts are sufficient to cover the costs of administering them during any winding down process.
Contingency plans are in place for a third party administrator to take over administration of the loan parts for investors should it become necessary for any reason.