ArchOver Review
Note: in January 2023, ArchOver announced it is switching business model to only allow institutional lenders. Individual lenders can no longer invest new money. The review below, therefore, no longer applies.
ArchOver's Mostly Secured Business Loans are unrated, due to lack of information.
We estimate these loans have been paying lenders around 6.85% interest after bad debts.
Visit ArchOver or keep reading the ArchOver Review.
What ArchOver does
ArchOver primarily does UK business loans that are largely secured on whatever business assets are available, with a preference for the business’s outstanding customer invoices.
It also does unsecured loans to give businesses an advance on tax credits, grants and tax reliefs, such as the research and development tax relief.
Loans are from £100,000 and up to £5 million. The average loan is around £250,000, although many borrowers have lots of ArchOver loans simultaneously.
Its secured loans can last up to two years and unsecured loans for up to one year. Loans can be repaid at the end, with interest paid regularly. Or they can be repaid monthly. A hybrid is common too, where some of the loan is repaid with interest every month, but a large final lump sum is repaid at the end.
When did ArchOver start?
Established in 2014, lenders using ArchOver have technically lent £160 million to business borrowers. This figure is possibly overstated due to a substantial proportion of loans being effectively extended by being renewed, but 4thWay is not provided with the full data.
What interesting or unique points does it have?
ArchOver’s owner, Hampden Group, has lent millions of pounds through the ArchOver lending platform, which I previously wrote is one of the most promising signals.
However, while that was the case as late as summer 2021, we have no recent information on how much the Hampden Group continues to put into the loans.
ArchOver review: how good are its loans?
The types of business loans ArchOver approves require a lot of individual, human analysis, so the P2P lending platform can’t rely to a big extent on credit reports and automated checks, to approve large numbers of loans to provide safety for lenders.
What we know about the quality of the loans is limited. We know that ArchOver wants to see that the borrower is likely to be able to meet the monthly loan payments.
Borrowers need to provide company accounts for the past two years as well as up-to-date management accounts (that’s ongoing accounting reports used by management), which is good.
The latest information we have is that secured loans must be for less than 90% of the value of security (e.g. less than 90% of the outstanding amounts on customer invoices), which is reasonably standard for loans that are secured in this way.
The type of security usually seen on ArchOver loans is not as strong as real property security usually is, so lenders should certainly be prepared for some losses on a good proportion of the loans that turn bad, until ArchOver proves it can do better.
ArchOver appears to allow borrowers to keep borrowing, sometimes to repay previous loans. Many borrowers borrow 5, 10, 15, 20 or more times through ArchOver.
While such repeat borrowing can be perfectly reasonable, it can also be the primary means, and easiest route, for a P2P lending company to hide problem debts. The problem is, we have next to no information on any of this.
Recognised bad debts tend to arise in very large lumps – far, far larger than the average loan size. I think the most probable reason for this is that borrowers have borrowed repeatedly before getting into trouble.
Without sufficient openness from ArchOver in terms of detailed data, results and explanations, this is a huge gap in our knowledge of this platform. The rate of repeat borrowing or refinancing is so high that 4thWay – and lenders – really require a lot of information on it.
I noted in the last ArchOver Review update that it had shown signs of consolidating its loan types and removing features of its lending accounts that didn’t work so well, which could improve the overall quality of the loans – and make them easier for lenders to understand.
There’s some circumstantial evidence the improvements continued through 2022, as you’d expect after roughly eight years of operating. This includes arranging more loans where borrowers repay part of the loan as they go, rather than at the end. It also has fewer loans where all the loan and all the interest is repaid in one go at the end, which makes it easier to spot problems with a borrower earlier on and reduce losses.
However, with the limited information available, I’m not able to form a strong opinion on loan quality.
ArchOver arranges loans with firms that it itself does business with, which is not ideal. As far as I’m able to see, it doesn’t always reveal this to lenders.
How much experience do ArchOver’s key people have?
ArchOver’s lending practices are driven by viewing prospective borrowers from an accounting perspective, for which it has significant experience and training.
Its people have some prior experience in credit analysis or similar, although this is limited and not at a senior level. I would like to see more.
Its key decision maker was promoted this year. With eight years at ArchOver in relevant roles, it must be meaningful experience that he has acquired. While we have previously met and interviewed some of the ArchOver team on several occasions, we haven’t had a chance to interview him.
ArchOver review: lending processes
In a previous version of the ArchOver Review, I noted that ArchOver had not made it clear to us whether it uses credit reports in its processes. We now know that it does, although its provider, Wiserfunding, is a new one. As such, we have not yet had the chance to assess the quality Wiserfunding’s scoring system.
Over the years, ArchOver has added to the tools and processes it uses to assess borrowers, and so we have seen it mature.
Personally, I’d prefer that ArchOver begins its research from a quantitative, analytical and impersonal approach from a distance.
But, the way they have described it, they get into personalities and a qualitative assessment first.
In my view, this can lead to errors from personal bias, and it also gives the borrowers more opportunity to use their charm and interpersonal skills to influence what ArchOver’s people later see in hard numbers and facts.
That aside, ArchOver’s processes on the whole sound reasonable and competent. Experienced underwriters, accountants and credit-committee members should be able to make good decisions if applying their skills to those processes and maintaining their discipline.
There are a lot of repeat themes in terms of the types of businesses ArchOver approves, indicating that it sticks to businesses it believes it understands.
ArchOver puts a great emphasis on monitoring borrower’s cash flow, their accounts and security, on a monthly basis, with the cash being diverted to flow to an ArchOver-controlled bank account in the first instance.
ArchOver’s focus on the borrowers’ ability to meet monthly payments and repay the loan is reassuring; for these kinds of loans, it should not be relying heavily on the borrowers’ security.
Nevertheless, ArchOver is big on borrower covenants, such as keeping enough cash on hand to meet the next loan payments, plus a little extra. It also uses negative pledges, which reinforces lenders’ security by making it harder for businesses to borrow substantially elsewhere using its assets as security.
These legal clauses, combined with strong monthly loan monitoring, reduce the risk of eventual losses from bad debts. They also reduce – but certainly don’t eliminate – the risk that ArchOver is rolling over poorly-performing debt into new loans.
How good are ArchOver’s interest rates, bad debts and margin of safety?
Total paid to lenders in interest has reached £13.1 million.
Superficially, it appears that loan amounts that have turned bad – which is at least £9.4 million – are outweighed by interest that has already been paid to lenders – and that’s even before taking into account any recoveries that ArchOver has made on those loans.
If this is the case, the risk-reward balance has been good and is likely to remain so for the foreseeable future.
We have insufficient information to see whether problems are bubbling under the surface or to conduct an analysis of margin of safety. However, as the years go by, this risk is sinking somewhat. I had expected deep cracks to have become visible by now, if there any were going to appear on ArchOver’s opaque wall.
Has ArchOver provided enough information to assess the risks?
I had hoped that, by now, we’d have a lot more positive news about ArchOver’s transparency. However, by any objective measure, ArchOver doesn’t provide as much information as many other P2P lending companies to either 4thWay or the public.
We have next to no information on repeat borrowing, little information on bad debts and bad-debt recoveries, and zero data on late loans.
We have insufficient information to measure the effectiveness of security offered by borrowers, or of the mitigation of risk inherent in covenants and loan monitoring.
Information provided to the public directly is also thin. ArchOver describes its processes on its website quite well, but lacks important supporting information on its people and its results. It provides very limited aggregated figures to show the current status of its outstanding loans and borrowers.
We know that it also makes very substantial mistakes in its aggregated figures. For example, showing nearly a million in loans that turned bad during 2017, but years later amending it to just half-a-million that turned bad that year. (Most likely the amendment was an error – but how many of those has it made?)
However, for logged-in users, ArchOver does provide detailed reports into individual borrowers. I believe it also communicates well with lenders when there are any problem debts.
A lot of the gaps in information are inexplicable. Reviews by lenders left on TrustPilot (after stripping out reviews from borrowers) are mostly very positive. Not universally, but in the main.
Circumstantial evidence suggests that ArchOver is not deliberately trying to hide problems, but perhaps rather suffering from lack of resources. Yet some key, missing pieces of information would be easy to provide, so the reasons are unclear.
The bottom line is that I believe 4thWay doesn’t receive sufficient information to truly assess the results and the risks and, therefore, whether the interest rates sufficiently cover the risks. If we don’t get it, you can be sure that individual lenders don’t either.
Is ArchOver profitable?
ArchOver isn’t yet profitable. However, it’s owned by a much larger and profitable business, Hampden Group, which provides insurance services. ArchOver appears to still be well supported by its parent, both financially and with services.
After cost cutting in 2019, losses were halved in 2020 to half a million pounds rising again slightly in 2021, according to accounts published in 2022. Revenue is around £1 million. I expect ArchOver is still some years away from becoming profitable.
Nevertheless, financially, ArchOver is very sound.
Is ArchOver a good investment?
It’s not possible to say with high confidence at this stage whether ArchOver is a good investment.
What is ArchOver’s minimum lending amount and how many loans can I lend in?
The minimum lending amount is fairly high at £1,000 per loan.
In a big change since I last updated the ArchOver Review, it’s now re-categorised its “Investment Plans” as legacy products, which puts it in a category of other types of loans or accounts that it has tested and moved on from.
Those plans were the only way to do automated lending with an automatic spread across loans. It also enabled smaller amounts to be lent in each loan.
It was a good idea; shame it’s offline, but I hope they replace it with something else.
You can reduce your risks by not lending to borrowers who borrow repeatedly, although that reduces the number of loans you can lend in.
In the past six months, 17 unique borrowers have borrowed through ArchOver.
You will probably need to drip your money in to lend to as many unique borrowers as possible over the course of more than one year to contain the possible risks.
ArchOver is therefore most suitable for people with deeper pockets.
Does ArchOver have an IFISA?
ArchOver’s lending accounts are available as IFISAs.
Can I sell ArchOver loans to exit early?
No. But do remember that selling before borrowers naturally repay is a luxury item that doesn’t always work anyway. Good lending strategy is to assume that you’ll need to lend until the borrowers repay naturally.
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ArchOver: key details
4thWay PLUS Rating
3 PLUSes is best. What does the 4thWay PLUS Rating tell you about the risks and rewards?
Interest rate after bad debt
Here we show the P2P lending site's own estimate (or 4thWay's if theirs are not appropriate)
4thWay Risk Score
Lower Risk Scores are better. How is this different to the 4thWay PLUS Rating?
Description
£160 m in loans to profitable businesses since 2014, mostly secured, with some loans having insurance that might cover some losses, optional auto-lend & auto-diversification. Available in an IFISA
Minimum lending amount
Exit fees - if you sell loans before borrowers fully repay
Early exit is not guaranteed. Usually, other lenders need to buy your loans
Do you get all your money back if you exit early?
Loan size compared to security value
Reserve fund size as % of outstanding loans
Company/directors lend alongside you/first loss
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