Daniel Grimes, director and owner of Connective Lending, explains how he took his pawnbroking empire to the world of peer-to-peer lending…
Daniel Grimes describes himself as an entrepreneur who just happened to spot a gap in the peer-to-peer lending market a few years back.
Before launching P2P pawnbroker Connective Lending in February of this year, he was the proud owner of a string of pawn shops across the south of England, as well as director and owner of a luxury watch store. But when he realised that there was a need for an experienced pawnbroker in the world of P2P, he knew there was only one man for the job.
Six months in, Connective Lending has reported no losses, and Grimes is planning an expansion into the property market, with a view to becoming a boutique lender of quality.
Grimes speaks to Kathryn Gaw about his journey from pawnbroking to P2P and beyond…
Kathryn Gaw (KG): What did you do before you entered the world of P2P?
Daniel Grimes (DG): I was working for BMW dealerships, selling cars, and wanted a break from the non-stop hours and low loyalty levels in that kind of business. I got involved in a pawnbroking business with my father. When he took ill about a year later, I took over the reins and over the next 10-12 years, I opened another four stores and became quite an experienced pawnbroker.
I had to change the business model a few times to survive, as many people do. What I was always aware of was the fact I got my accounts done accurately, within a week of every month, so I always knew whether we had made or lost money so I could react quickly. It’s surprising how many people don’t do that.
Throughout this time, we always bought and sold luxury watches. I’ve been doing this for years and in the early 2010s I opened a website called watchbuyers.co.uk. Back then, Google used to count your URL quite highly, so within a week, we were on page one of Google and it became a monster. We went from £1.4m, to £1.9m, to £2.4m, to £3.5m just before the pandemic. That gave me a deep, deep understanding of watches, which are assets, and through that time as a watch valuer, I met Noman Akram, one of the founders of FundingSecure. He came to see me in early 2018 and asked if I could help him build a sustainable business. My thoughts were, I will, as long as I am making the decisions.
KG: How easy was it to enter the P2P world?
DG: We spent a long time getting the licence and we jumped through many, many hoops. We wrote many documents and spent thousands on compliance consultants, solicitors and legal agreements. To cut a long story short, we finally got our licence in November 2020. We could have got it a year earlier based on my experience, but we wanted the option to be able to do property in the future, so we decided to bring some property experts on board.
We started lending in February and have been building up loans nicely and organically, through various means, whether it’s via Google or refinancing loans from other companies, or receiving broker recommendations. What we’ve done so far has been very encouraging.
KG: Why did you decide to enter the P2P space?
DG: The industry was lacking an expert in pawnbroking. It’s not as simple as people think. It’s fraught with danger and people trying to pull the wool over your eyes and I hate to use the word streetwise, but I could see there was no ‘streetwise’ pawnbroker in the P2P pawnbroking field.
The key to successful pawnbroking is so simple – you should lend an amount on an asset that the customer can afford to get back and that they do get back because the profit in pawnbroking is by earning interest on the loan. That’s where maybe there had been a bit of naivety in the P2P field and I thought I could come in and make a success of it.
KG: Can you talk us through the life cycle of the loan?
DG: We’ll get offered an asset that somebody wants leverage against. The key to our business is the asset – you don’t have to do affordability checks with borrowers because you’ve got their asset.
We look at the asset and establish a quick disposal value, and then we’ll establish a loan amount. Our aim is to make sure there is enough equity for our investors to always get their capital and interest, and for the platform to get its admin fee and interest as well.
Read more: Is P2P pawnbroking coming back into fashion?
If a loan is accepted by a borrower based on those initial investigations, we will go and collect it in person, get a valuation and check that it matches the description that’s normally been obtained digitally. We will make a final loan offer and if the borrower accepts, we’ll then launch the loan on our platform and notify investors. We put a loan up today for a collection of luxury watches and it was filled within minutes.
At that point, we issue the loan contact, get it signed, and take possession of the assets.
KG: What’s the most expensive item you’ve taken possession of?
DG: In financial amounts so far, the most expensive was £156,000 and second was £110,000 – both for cars.
KG: And the strangest?
DG: We’ve taken American Harley Davison motorbikes – army ones, all painted green with machine gun holders on the back, so you could ride between posts in whatever war you were fighting and deliver messages. We’ve taken gold teeth, boats, art – even a restaurant.
KG: Tell us about your regulatory journey.
DG: We submitted our application to the Financial Conduct Authority (FCA) in mid-2018 and got our licence in November 2020. I’ve been in financial services since 1997 and the regulators are so much more active now. In my day, if you wanted to become a pawnbroker or a moneylender, you filled in a one-page form and that was it. Debt collecting? Yeah, we’ll do that. Nobody ever checked. To be kind to the FCA, they’ve got a job to do, they’re under lots of pressure, and everyone loves to moan. Overall, they’re doing an OK job. It’s nothing more than a bit of regulation and at least it gets rid of all the idiots, the thieves and the Ponzi scheme boys. It can be frustrating, but we’ve all got a job to do.
KG: When do you plan to enter the property lending market?
DG: When we choose to enter the property market, it will only be when we build a sustainable pawnbroking loanbook that is paying enough interest to keep our investors happy and create income for the business, because obviously the business has to be profitable at some point.
When we do enter property, we would only want a niche property loanbook. We will probably say no to quite a few loans because we don’t want risky loans and we certainly don’t want disposals.
KG: Where do you see Connective Lending in five years?
DG: The plan is to have a self-financing, profitable loanbook of a few million pounds. I hope that in five years, we could build a £10m loanbook over a multitude of different asset classes, most importantly, only lending money that gets paid back. I call it the Goldilocks loan. Getting it right is the key to success. If we could get to £10m in five years and have a boutique of £10m pounds worth of investors who would be very happy earning 12 per cent per annum, and have absolute trust in what we do, that’s us. Nothing grandiose – just a really good, sustainable business that gets people a good return on their money.
We want a successful business, but we want to do it in a nice way, we want to do it in an honest way. That’s what I’ve done for 25 years, and I’ve never had a failed business.