The Business Lending Blog

Rate Review 2017 – New grades, rates & terms…

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We’re making some changes to the interest rates, loan grades and repayment terms available on Linked Finance, here’s what you need to know…

We recently completed a review of our existing loan grades, interest rates and repayment terms. Following this review, we have decided to make some changes. This is to ensure that we continue to accurately price the risk of each loan, and in order to give our lenders more choice in the range of rates and returns available.

Demand is the most obvious driver of these changes. We see increased demand for certain loan types from both borrowers and lenders and we are adjusting our rates to reflect this.

Furthermore, we have also considered changing macroeconomic factors, changes in domestic economic activity and competitive forces in the wider SME lending market. We will complete an annual rate review like this each year, with a view to ensuring that Linked Finance remains well positioned in the wider lending landscape.

As always, our aim is to make Linked Finance an attractive option for even more Irish SMEs, while also ensuring that our lenders can continue to make attractive returns with a loan portfolio that reflects their individual appetites for risk.

Here are the key changes we will be making:

  • 6 Month Loans – We will be introducing a 6-month loan product. This is in response to a number of requests from borrowers who want short-term facilities specifically for stocking loans, bridging finance, or smaller requirements such as software upgrades or new hires. The huge popularity of 1-year loans with our lenders was another consideration in this decision.
  • A+ Grades – We are splitting the existing A grade and introducing a new “A+” grade. This new grade will consist solely of loan requests that have received the very highest credit evaluation from our credit team. It will not dilute the quality or change the risk profile of other grades, it purely provides a new lower risk offering for lenders and more competitive rates for the strongest borrowers. To learn more about our grading system and our credit evaluation process in general, check out this in-depth blog post from Derek O’Doherty, Head of Credit.
  • Rate Changes – We have also taken the opportunity to make changes to some of the rates which apply to existing loan grades and terms. This is to ensure we continue to accurately price the risk for each grade based on direct experience across our growing loan book and constantly evolving external economic factors. We would expect to refine our rates on an annual basis going forward, to ensure we reflect changing market conditions. These new rates will take effect from next Tuesday, 12th September.

When all of these new changes come into play, this is how the interest rate matrix on the platform will look:

 6 months12 months24 months36 months

The changes to our rates will significantly broaden the range of returns that lenders can potentially achieve. As you can see, rates will now range from 6% to 17.5%. Lenders will also start to see more of the higher-return lending opportunities from the ‘D’ and ‘Y’ categories on the marketplace.

Again, this blog post from Derek, our Head of Credit, gives great insight into our credit evaluation process and will give you a better understanding of how the grades above are assigned to individual loan requests.

Any Autobid rules that you have in place will carry over after the rate change is implemented and the bidding order will not be affected. If you would like to broaden your Autobid electives to include 6 month and A+ loans, you will be able to do so from now. The first loans under the new matrix will go live on Tuesday 12th September. Please note though, that changes you make to your Autobid rules will be effective immediately and bids placed on any loans published before Tuesday 12th September, will still use the existing rates.

Managing Risk and Potential Default
Lenders should note that the Linked Finance Credit Team will continue to implement regular Portfolio Management Reviews to monitor the risk of the overall loan book and the weighting of the book per credit grade. In the same way that we advise individual lenders to diversify risk across various grades and terms, we will seek to manage the loan book to ensure that we are not overly exposed to any one grade, repayment term or industry sector.

As always, we are making these changes with the best interests of both borrowers and lenders at heart. We believe that these new rates will help us to attract a much wider number of high-quality SMEs to the platform while at the same time ensuring that our lenders continue to make attractive and sustainable returns.

If you have any comments or feedback in relation to these changes, please feel free to let us know below…