Rebuildingsociety in profit after “difficult phase” last year
PEER-TO-PEER platform Rebuildingsociety is in profit after a “difficult phase” led to balance sheet losses in 2018.
Chief executive Daniel Rajkumar told Peer2Peer Finance News that as of 31 August 2019, the business lender had a pre-tax profit of £71,000, and £281,000 in total revenue. However, according to newly-released financial statements for the year ending 31 December 2018, the platform made a loss of £155,122. By contrast, at the end of 2017, the platform made a profit of £112,469.
Rajkumar explained that the loss was due to a combination of factors, including a change in the way that unpaid default fees were recorded; and the departure of a board member.
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“When a business defaults, we do two things – we pay legal expenses for the layers to enforce on the loan and when we pay those legal fees we take a cash hit but it also stays on the balance sheet because we’re expecting the borrower to compensate us for those legal fees,” said Rajkumar.
“What we used to do is accrue a default fee which was 17 per cent of the defaulted amount on the loan. But what we’ve now done is weighted that to the probability that we have of the recovery of each of the loans on a loan-by-loan basis.”
Rajkumar added that he did not want to run the risk of overstating the value of those fees that have yet to come into the company, saying that this shift in accounting was “one of the largest contributors to the cost” last year.
“We also towards the end of last year hired a board member that didn’t work out for,” Rajkumar said. “That was an expensive exercise because while she did bring a lot of good experience to the firm and helped us with various areas on policy improvements, we didn’t get the progress we were hoping for in terms of business development.
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“As a consequence, I took my eye off the ball in terms of how the business was trading and we traded at a significant loss right towards the end of 2018.”
The company’s balance sheet also suffered due to the separation of the White Label Crowdfunding brand, which was spun off from Rebuildingsociety in 2014. According to the financial statements, by the end of 2018, White Label Crowdfunding owed Rebuildingsociety a total of £211,836 – up from £150,945 in 2017.
“The end of 2018 was a difficult phase for the business,” said Rajkumar. “But we’re pleased that we turned a corner at the start of the year and that we’ve had a very strong 2019 in spite of a lot of industry challenges.
“The platform has grown, we’re trading profitably now and we are pleased that we’ve got a sustainable business model. We will be careful about future growth steps, so as not to over burden the business.”
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