Here’s how Blend Network is different
Peer-to-peer is often seen as a product. We don’t believe it’s a product, but a tool that gives investors direct access to a wide range of loans. The way we like to describe peer-to-peer is like a sandwich: what matters is what’s inside. In other words, there are different types of peer-to-peer platforms each offering different types of risk. Here we answer 5 important questions regarding the product we offer at Blend Network:
What are the different types of loans?
The risks are very different for platforms that offer: 1) unsecured consumer loans, 2) unsecured business loans, 3) secured business loans (secured against a debenture), and 4) property-secured loans (secured against a charge on the property). Blend loans are only made against security to help protect lender money in a default scenario. Generally, we define two types of risks: risk of default (i.e. the probability that a borrower defaults on a loan) and risk of loss (i.e. the probability that lenders lose the money they lent plus their interest).
How does Blend Network minimise the risk of default?
At Blend, our due diligence process behind each and every single loan is entirely manual. We have kept it that way on purpose, and we intend to continue to do so, because we believe this is the best way to bring quality loans to our lenders and keep default to a minimum. We pride ourselves by the strength of our due diligence process. We always visit the sites and meet the borrower in person. As Moise Safra used to say, ‘For eyes tell more than balance sheets.’ Borrowers are double-vetted by both Blend’s Credit Committee and a sponsor before being listed on the Blend platform. Our Credit Committee is chaired by senior banker Charles Lamplugh who has 35 years of experience successfully winning and running corporate relationships for Lloyds Banking Group. In addition, Blend loans are made against a first charge on the security as well as a personal guarantee from the developer.
How does Blend Network minimise the risk of loss?
There are a few things that we do at Blend to reduce the risk of loss for our lenders in the unlikely scenario that a loan was to default.
- We keep our Loan-To-Value (LTV) below 60%, which means that even if we had to step in to liquidate the asset and sell it at a discount, it is likely that we will be able to recover lenders’ money with little to no loss.
- We focus purely on lending towards liquid assets. For example, it is unlikely that we would lend towards a £5 million property in London or a £10 million commercial asset. Instead, we typically fund mid-value properties across the UK regions where the market is outperforming the London market and where demand is strong.
- We only release the funds to the borrower in tranches. We carry out regular monitoring throughout the development process (Quantity Surveyor for larger developments), and funds are only released after a positive monitoring report has been issued at each stage. In other words, we would never hand the cash to the borrower and say ‘good luck, see you in 18 months’
Walk me through what happens if a loan defaults.
In the unlikely event that a borrower defaults on a loan, Blend would seek to re-possess the asset (and any additional security). Subsequently, Blend would liquidate the security in the open market on our lenders’ behalf.
What is Blend Network’s default rate so far?
Zero. Blend has 0% default rate so far (as of September 25th), and we intend to keep it that way.