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Why Growth Street Is Number One
It's exciting for me to see changes in 4thWay's comparison tables, but how are the different P2P lending products in those tables ranked from top to bottom? And how has this enabled new entrant Growth Street to go straight to the top of the table? What's so good about it?
How Growth Street shook things up
I was getting quite bored with Landbay sitting so impressively at the top of the comparison table for so long. It had been there ever since it was able to earn a 4thWay PLUS Rating.
Growth Street has now taken its place. Just briefly to describe this new P2P lending site:
- It does secured overdrafts to businesses as well as lending to those businesses secured against their outstanding customer bills.
- It has completed over £14 million in loans since 2014.
- It pays over 6% interest.
- It automatically spreads lenders' risks across all loans.
- It has a massive reserve fund to cover expected losses.
Here's how it is at the top and how the comparison tables are ordered:
1. Higher 4thWay PLUS Ratings come first
A 5/5 rating is at the top of the table.
The bottom of the table is full of P2P lending sites that are either too new, small or too rubbish to get a rating, or they simply haven't provided enough information for individual lenders or 4thWay's experts to use the quantitative risk-modelling techniques used by the banks to measure risks.
To eran a PLUS Rating, apart from having a big enough history to do a meaningful assessment, the following information (among other things) is used in the standard calculations:
- Size and history.
- Type of lending.
- How secure the loans are.
- The history of late payments and loans that have gone bad.
- Any reserve funds or other substantial protections.
- The interest rates.
- Huge penalties are added in the calculations in awarding PLUS Ratings if cases are borderline, e.g. the number of loans is barely large enough to be measured or there are some typical unusual hints in the P2P sites' deep data showing they might not have the banking skills and experience that individual lenders should expect.
- Sites are excluded if there are deeply serious and clear red flags regarding the P2P lending site's honesty or ability to repay lenders.
With all this information we use a very conservative bordering on mean version of the risk tests that banks are required to do on their loan books, based on the international Basel standards. These estimate what might happen if there was a recession worse than 2008 and a property crash involving distressed property sale prices of -55%!
Only P2P sites that look likely to leave most lenders with positive gains even during such an awful recession earn a PLUS Rating. 1/5 means that lenders should usually recover any losses before all the loans are repaid (up to six years) and 5/5 means they should recover their losses within two years – if they make any losses at all.
2. Best risk scores come next
Both Growth Street and Landbay* have a 5/5 4thWay PLUS Rating. Indeed, there are quite a few P2P lending products that have now earned the 5/5 rating, so in the event of a tie we then look at the risk score.
The risk score is the same as the 4thWay PLUS Rating except it does not measure both the risks and the interest earned, it just measures the risks.
What's the point of that, you might ask? Good question, but there's also a good reason.
The point is that, the lower the risk, the fewer the number of loans you need in order to spread out your risks enough. To give a simple example, do you think it would be safe to lend £10,000 to your neighbour with no guarantees, or would it be safer to lend £10,000 to your other neighbour secured against your neighbours house like a mortgage – and with the P2P lending site also setting aside extra cash to pay for losses on your behalf?
Clearly, the second loan is far safer. So you might just lend to 20-40 such borrowers and be comfortable with the risks.
For the other sort – those just borrowing for a holiday or to consolidate debts – you could need to lend to one or two hundred because the risk of losing all your money is higher.
- 0/10: The lowest and best risk score, but in reality no P2P site can ever earn this since it means there is no risk at all.
- 1/10: Also not achievable in P2P lending, since it is the same risk as savings accounts, which are protected by the taxpayer through the Financial Services Compensation Scheme.
- 2/10: is the lowest realistic score a P2P lending site can earn, which means that during a severe recession and property crash we expect lenders not to lose money even if they earn no interest at all. In other words, lenders would get all their money back due to reserve funds paying for their losses and borrowers being forced to sell their property or other possessions as “security”, and these borrowers' security is expected to be worth far more than the amounts borrowed.
- 3/10: Before any interest earned, lenders are typically expected to lose up to 2.5% in a severe recession.
- 4/10 to 6/10: Before any interest earned, lenders are expected to lose 2.5%-15% in a severe recession.
- 7/10 to 9/10: Before any interest earned, lenders are expected to lose 15%-40% in a severe recession. (Stock-market level risks.)
- 10/10: The highest and worst risk score. Before any interest earned, lenders are expected to lose 40%+ in a severe recession. (Stock-market level risks.)
3. Interest rates in third place
Both Growth Street and Landbay don't just share a 5/5 4thWay PLUS Rating but also the lowest risk score ever awarded: 2/10.
Hence, there's a third tiebreaker: highest interest rate wins.
Growth Street pays over 6% and Landbay under 4%. Hence, Growth Street wins the clash of the Titans and is top of the comparison table.
Don't just take my word for it
Our experts, and also us writers, really insist on being completely candid and honest about all the downsides and this includes making sure that the comparison tables list the P2P lending products in a fair and understandable order.
That's one of the reasons that our website users have nominated from among themselves people to be on the Panel of Peers. These users are allowed to force us to make changes to our comparison tables and elsewhere. You can read about the Panel of Peers here and, please, let us know if you want to put anyone's names down for nomination since we want to grow the panel some more.
Read a review of Growth Street by one of 4thWay's experts.
*Commission, fees and impartial research: our service is free to you. 4thWay shows dozens of P2P lending accounts in our accurate comparison tables and we add new ones as they make it through our listing process. We receive compensation from Landbay, and other P2P lending companies not mentioned above either when you click through from our website and open accounts with them, or to cover the costs of conducting our calculated stress tests and ratings assessments. We vigorously ensure that this doesn't affect our editorial independence. Read How we earn money fairly with your help.
The 4thWay® PLUS Ratings are calculations developed by professional risk modellers (someone who models risks for the banks), experienced investors and a debt specialist from one of the major consultancy firms. They measure the interest you earn against the risk of suffering losses from borrowers being unable to repay their loans in scenarios up to a serious recession and a major property crash. The ratings assume you spread your money across hundreds or thousands of loans, and continue lending until all your loans are repaid. They assume you lend across 6-12 rated P2P lending accounts or IFISAs, and measure your overall performance across all of them, not against individual performances.
The 4thWay PLUS Ratings are calculated using objective criteria that can be measured and improved on over time, although no rating system is perfect. Read more about the 4thWay® PLUS Ratings.
