Lending Works has stopped all new retail investor signups, all investments from new or existing customers, and all new loan issuances for at least 90 days.
The platform has also suspended the use of its secondary market, and it will temporarily divert all of its investors’ interest payments into its provision fund – the Lending Works Shield.
The new restrictions were revealed today (6 April) in a note to investors from Lending Works’ chief executive Nicholas Harding, along with chief finance officer Matthew Powell, and chairman Simon Waugh.
The team said that market volatility caused by the coronavirus pandemic meant that seven per cent of the platform’s retail investors requested early access to funds using the secondary market within a very short space of time.
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“This, in turn, has created a queue of customers trying to exit their investments, which has placed a restriction on our ability to continue lending as we were before the Covid-19 crisis occurred,” they added.
“Furthermore, due to the current state of uncertainty, it has become extremely difficult to effectively assess customers’ creditworthiness and affordability. This has clearly placed an unsustainable strain on the platform.”
In an effort to protect lenders’ investments and ensure the long-term stability of the platform, Lending Works is introducing a 90-day ‘Normalisation Period’, during which time it will pause all new retail investor signups, not accept any new investments onto the platform either from new or existing customers, suspend the use of the secondary market, and not issue any new retail investor funded loans.
“If you currently have a pending loan sale request, unfortunately, you will be required to wait until the Normalisation Period has ended,” the platform said. “However, the order of the queued requests will be maintained once the Normalisation Period ends.”
Lending Works will continue to receive a pro-rated servicing margin of two per cent per annum of the outstanding loan portfolio to cover the its costs and ensure that the platform remains sustainable.
Harding, Powell and Waugh revealed that over the past month the platform’s revenue has dropped from approximately £0.75m per month to near-zero.
To further cut costs, one third of the team has been placed on furlough under the government’s Job Retention scheme, and the remainder will be taking a 20 per cent salary reduction.
“We want to highlight that we have not taken the decision to enter into a Normalisation Period lightly, and we have explored all other possible options to avoid it,” said Harding, Powell and Waugh in their note to investors.
“We understand that this step might cause you concern. We want to emphasise we have done this to protect your investment. By introducing these measures we can ensure that the platform continues to function as expected during these extraordinary times and when the Normalisation Period has ended we, and the rest of the world, will have a better understanding of the long-term effects of coronavirus on the economy.”
The platform also told investors that from April 2020, it will be temporarily diverting all interest repayments to the Lending Works Shield. This means that during the second quarter of 2020, retail investors will continue to receive capital repayments on their loans but will not be receiving interest.
“There is still a great deal of uncertainty in the economy and around the long-term impacts of the coronavirus on society, and we cannot predict what the ultimate outcome will be,” added Lending Works.
“What we can do, though, is to make sure we are as well prepared to protect your investment as we can be, and it is for this reason we have introduced these extraordinary measures.”