Proplend ‘Auto-Lend’: Overview

By Jordan Stodart | On November 1st, 2018
Proplend review

Proplend is a UK peer to peer lending (P2P) platform which facilitates commercial property loans. Historically, investors with Proplend have had to manually select the loans they wish to invest in. Now, the platform has launched an ‘Auto-Lend’ product alongside its ‘Manual’ product, enabling the automatic investment of cash into the least risky loans available. Here are the details.

 

Key Platform Details

Founded2014
AuthorisationFull FCA authorisation
Total Lent£46.3 million
Investment ProductsManual or Auto-Lend
Min Investment£1,000
Interest Rate5-12% (product & loan dependent)
Interest PaymentMonthly
BorrowersCommercial property
Security1st charge over property ; conservative LTV ratios
TermUp to 5 years (loan dependent)
DiversificationManually achieved or automatically achieved (Auto-Lend)
AccessSecondary market available
Investor Fees10% of gross interest rate + 0.5% of loan parts sold on secondary market

Table 1: Proplend Platform Details

 

Proplend ‘Auto-Lend’ Overview

Key Product Details

Loan SelectionAuto-invest/Auto-lend
Loan TypeCommercial property – Tranche A
Primary Security1st charge on property securing Tranche A loans (least risky)
Min Investment£1,000
Interest Rate5% (before bad debt and taxes)
TermUp to 3 years
DiversificationNo more than 20% account value in each loan after £5,000 invested
AccessSecondary market available
Investor Fees10% of gross interest rate + 0.5% of loan parts sold on secondary market

Table 2: Proplend ‘Auto-Lend’ Details

 

How it Works

Proplend investors can enable Auto-Lend by clicking the button in their Proplend account. Once enabled, any cash available in the account will be swept and automatically allocated to ‘In Funding’ and ‘Proplend Loan Exchange’ (PLE) Tranche A investments.

Investors can expect an average rate of return of 5% and will be allocated to the least risky loans on offer.

Proplend Auto-Lend enabled at the click of a button

Investors must ‘Turn On’ Auto-Lend on their Lender Dashboard

 

Investment Process

With Auto-Lend enabled, funds are allocated to ‘In Funding’ or ‘Proplend Loan Exchange’ Tranche A loans.

In Funding is the primary market where new loans are launched. It runs every morning (assuming loan availability).

Proplend Loan Exchange (PLE) is the secondary market where loan parts can be bought and sold. It runs every evening (assuming loan availability).

 

Deploying Funds

There are three ways funds can be deployed under Auto-Lend, each has implications on the time it takes for funds to be matched to loans:

  1. Invest principal plus accrued interest to receive loans from PLE
    • Investors must fund the accrued interest on a PLE loan to be allocated it
    • PLE is fairly active, with loans regularly on sale. The PLE runs daily after 3pm.
      • Deployment achieved within a day
  1. Invest principal only and await a PLE loan’s next interest payment date
    • As soon as the next monthly interest payment has been made, a loan’s interest is reset to zero at which point principal can be allocated
      • Deployment depends on when the next loan interest payment date is. This could take several days.
  1. Invest principal only and await In Funding (new) loans
    • If an In Funding loan launches before a PLE loan reaches its next interest payment date, investors will be allocated to the In Funding loan
      • Limited new loans on Proplend. Deployment could take several days or weeks.

 

Loan Allocation

Proplend categorises loans into three tranches relative to their riskiness; primarily the level of loan-to-value (LTV) ratio. The tranche determines the interest rate received.

Interest rates displayed below are average annual interest rates after fees, but before bad debt and taxes, and assume no interest is reinvested.

TrancheInterest RateLTVProduct Eligibility
A7.4%0-50%Auto-Lend & Manual
B9.68%51-65%Manual
C11.86%66-75%Manual

Table 3: Proplend Tranches

 

With Auto-Lend enabled, funds are allocated to Tranche A loans. Auto-Lend grants priority access to Tranche A In Funding loans before they’re made available to Manual investors.

 

Token Queue Process

A token creation process is used where available cash balances are divided into £1,000 parts and each token goes into a queue in the order the investor joined the platform. All enabled accounts with £1,000+ available cash will be allocated a loan part before any account has a second token processed.

 

Open Proplend Account

 

Diversification

The number of loans an investor is allocated to depends on the amount invested. Proplend has a 20% concentration limit, meaning no more than 20% of a total account value will be allocated to a single loan, assuming the account value is £5,000 or more.

 

Proplend highlights a number of scenarios, these include:

 

Scenario 1: No loan holdings, cash only

£20,000 cash available. Auto-Lend can only allocate up to £4,000 (20%) to any one loan. Diversification across 5 loans achieved (subject to availability).

 

Scenario 2: Existing loan holdings & cash

£16,000 invested across 4 loans (any tranches) and £4,000 cash available. Auto-Lend looks to invest all the cash (20% of the account value) into the next available Tranche A loan.

 

Scenario 3: New account, cash deposit

£1,000 deposited as cash. Auto-Lend allocates to next available Tranche A loan.

 

NB: Enabling Auto-Lend with existing holdings may mean available cash is auto-invested into relatively few loans and larger amounts.

 

Note to readers: I personally invested money and had funds matched the same day. I invested enough to cover the principal and accrued interest of a single PLE loan. My gross interest is 6.4%.

 

Access

There are two main steps to accessing funds early when Auto-Lend is enabled:

Step 1: Turn off Auto-Lend on the Lender Dashboard (see pic above)

Step 2: Choose the loan(s) you want to sell on the Proplend Loan Exchange

 

There are no guarantees funds can be accessed early. However, Proplend does maintain a fairly active secondary market, so loan parts can be traded quickly in normal conditions.

 

Benefits

  • Hassle free investing, no manual selection required
  • Allocation to least risky loans
  • Active secondary market to sell holdings

 

Considerations

  • Limited diversification on low investment amounts
  • Uncertainty over time to deploy (invest) funds
  • Reduced rate of return

 

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Conclusion

Proplend is adding greater value for its investors by introducing their Auto-Lend function. Investors can still select individual loans at Proplend, by way of the Manual function, but can also have spare cash automatically swept and allocated to the least risky, Tranche A, loans offered on the primary and secondary markets. Proplend’s real limitations lie in the availability of loans, meaning diversification can be hard to achieve. Higher value investors should be adequately diversified, but generally it may take some time to build up holdings.

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