Dozens of small businesses that borrowed money from peer-to-peer lending platform Growth Street have been told they must repay their loans.
Growth Street, which has lent £17.5m of investors’ money to 116 small businesses affected, is exiting the peer-to-peer market, giving them just three months’ notice to repay their debts.
The average amount owed is £148,122, with London and the South East accounting for 41 per cent of all borrowing, according to SME financier Rangewell.
Loans repaid will be redistributed to Growth Street’s peer-to-peer investors in quarterly instalments, with any losses shared equally.
Astonishingly, not one of the affected businesses has missed a loan repayment to date.
A letter sent by Growth Street to borrowers, seen by the Times, concedes that the wind-down is “likely to be disruptive to your business”.
Back in March, Growth Street’s peer-to-peer investors panicked because of Covid-19 and extracted their cash from high-risk lending to small businesses as fast as possible. To try and stop the haemorrhage the investor stampede for the exit, Growth Street initiated a “liquidity event”, telling small business borrowers they had to repay their loans within three months.
Although Growth Street wrote to the 116 affected businesses telling them they do need to be repaid within three months, this is a legalism, according to one source, and Growth Street has been mindful of the predicament it has left small businesses in, trying to tailor individual repayment plans and helping to find new lenders to take over its positions.
One source said: “They are trying to minimise the disruption. And, unlike collapsed P2P platform Lendy, they’re not walking away.”
However, given that Growth Street raised £18m from fintech investors Merian Chrysalis and Arts Alliance last year, it is unclear why it has not gone back to its equity investors and asked them to cover the outstanding debts. That way, repayments could continue as normal without the high chance of small businesses being unable to repay the entire amount.
Although it is barred, as a peer-to-peer lending platform itself, from accessing Government coronavirus business support, there is nothing to stop the affected businesses converting their Growth Street debt into a coronavirus business interruption loan – providing of course they find a willing lender.
The London-based company’s Growthline product, described as a cross between invoice finance and an overdraft, provided flexible working capital loans of between £25,000 and £1m to small companies.
Only this time last year, Growth Street said that it planned to lend up to £1bn a year to small businesses by 2022.
Last week, Growth Street announced it was phasing out peer-to-peer lending to concentrate on finding institutional debt funding.
Paolo Lepore of Rangewell, which is working with some of Growth Street’s businesses trying to swap out its money, said that some Growth Street borrowers may be eligible for the CBIL scheme but it won’t be a case that Growth Street’s clients will be able to simply just move to another lender en masse as there is no direct match to what Growth Street offered.
Lepore said: “Rangewell are already working with a number of Growth Street borrowers and, although it’s not going to be easy, we’ve had a good response from our lender panel to date – we’ve spoken to over 15 lenders from the high street banks to niche lenders who have expressed interest in the proposals we’ve discussed to date.”