Lending to Small and Medium sized businesses (SMEs) is risky and you should be aware that your capital is at risk and so are interest payments. You should only invest money that you can afford to lose. We want you to make an informed decision, in full knowledge of the benefits and the risks of lending through the Huddle Platform. Treating you fairly is a philosophy upon which we have founded our firm.
We urge you to read the risk warnings below and consider these risks before making any commitment.
Please bear in mind that lending to an SME is a form of an investment that carries risks like any other investment. Here are some of the main risk factors involved in SME lending, which you should carefully consider. Please bear in mind that these are by no means an exhaustive list of risks that your investment will be exposed to. If in doubt, always seek professional advice.
With more traditional investments and bank deposits, the Financial Services Compensation Scheme will cover losses up to a certain amount. However, business to business and peer to peer lending is not covered by this scheme.
When you lend your money to a UK business, there is a likelihood that they will not be able to pay the interest on the loan, part of the loan or the full amount loaned to them. This is known as default risk.
To help you mitigate this risk, we will provide you with full disclosure of the information we receive from the borrower. We also carry out stringent underwriting on every loan and you will get a Huddle Loan Proposal for every loan, where we highlight the risks and any adverse information about the company.
We also carry out a credit check on every company using the Red flag system. We also carry out checks to determine any adverse media on the company and identity and history of the directors and major shareholders.
Huddle Capital will also provide you with a running default rate of the entire loan portfolio, and this information will be updated monthly, so you can see how the loans are performing.
Whilst we carry out extensive checks on the borrowing companies, we are reliant on them to provide information about their company, financials, and reason for loans, etc. We do however visit each Borrower and get to understand their business, vet them and assess suitability for granting a loan. However, sometimes, this information may be inaccurate or incomplete.
Information submitted by Borrowers, and the prospects and ability to pay interest must be considered in light of the risks, expenses, and difficulties frequently encountered when any business is operating. Any lack of information on the operating history of the company will make it difficult for investors to assess the quality of the management and the ability to operate profitably and pay interest to the Lenders.
Huddle Capital cannot assure Lenders that a Borrower will be able to implement their business strategies, that any of the strategies will be achieved or that the Borrower will be able to operate profitably and pay regular interest to the Lenders.
Therefore, Lenders must ensure they have read the information submitted by the Borrower and make their own assessment of the ability of the Borrower to pay interest due on loans. We aim to mitigate the risk of the Borrower not paying interest and capital due, by assuring that each loan is backed by an asset which, in the event of default could be seized and used to repay the Lenders their full or part capital and interest, depending on how much we are able to recover on your behalf, subsequent to a default.
Some Borrowers may be holding companies and the principal asset within that business will be the asset loaned against. As a result, the Borrowing Company may be dependent on income from that asset to generate the funds necessary to meet the financial obligations to the Lenders.
Huddle Capital may rely on third parties to introduce borrower business. We only accept vetted intermediaries and we will review our ongoing relationship with them on an annual basis. The annual review will factor in the loans referred to us by intermediaries and this will determine whether we continue our business relationship with them or not.
Third party loans go through the same due diligence and underwriting process as loans we receive directly.
SME lending is not liquid. In other words, once you have committed to granting the loan, you have to wait for the agreed period to get your money back. Huddle Capital does, however, have a secondary market where you can sell the loan on to another investor.
Please bear in mind however, that investors may not want to buy that loan, or they may offer a discount on the nominal value of the loan, so that you do not earn your full anticipated return for that period or may even end up losing some of your capital, if you do sell the loan on that basis.
If Huddle Capital is unable to trade or wishes not to trade, then you rest assured that your loan will continue to be managed in a seamless way by a third party that we have appointed. Currently, we have an arrangement with rebuildingsociety.com, who is a regulated and experienced peer to the business lender, who will administer the loans until the loan is fully wound down.
Of course, we stop providing any new loans at the point where we are no longer able to trade. Please bear in mind, the third party may, at their discretion, decide to charge a service fee or impose any additional costs in order to administer the loan book. This could affect your returns.
If a Lender does not diversify their portfolio of Loans sufficiently, the risks associated with this limited diversification will be higher than a fully diversified portfolio. Therefore, a Lender must be comfortable with their level of diversification in their loan portfolio compared to the returns they are receiving.
Changes in economic conditions, including, for example, interest rates, inflation rates, employment conditions, competition, technological developments, political and diplomatic events and trends, terrorism, and tax laws can affect substantially and adversely the Borrowers. None of these conditions are within the control of Huddle Capital or the Borrowers and no assurances can be given that Borrowers will anticipate these developments.
While Huddle Capital does everything it can to secure Lenders funds in each transaction, there is no guarantee provided by us that the investments made in loans on the platform will not result in losses to Lenders.
Huddle Capital applies a risk management approach that it believes is appropriate for each loan. The application of any risk management approach involves numerous judgments and qualitative assessments. No risk management system is fail-safe, and no assurance can be given that the Ccompany’s risk control framework will achieve its objectives.
There are certain market conditions in which any given investment strategy is unlikely to be profitable. Neither the Company nor the management has the ability to control or predict such market conditions. Your investment in loans will not increase or decrease with financial market movements and you will not receive more than the interest due during the term of the loan and capital owed at the end of the loan. The only exception to this is where you sell your loan for a premium in the Secondary Market. However, you should not rely on any enhancements to your capital from the sale of your loan as liquidity in the Secondary Market is not guaranteed and a market may not develop on the Huddle platform for existing loans being sold by users
We would strongly suggest that you take independent financial advice before considering investing through any peer lending platform or any investment in general. An independent advisor will be able to assess your suitability to invest in such loans and give advice based on your individual circumstances. Huddle Capital, its management, and employees are not authorised to give you advice and we act solely as an introduction platform bringing together Lenders and Borrowers, we take no risk nor position in any transactions unless we have declared as much within the terms of a particular loan.
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