Warning- it's dull, niche, and doesn't end humanity 🤷‍♂️. 

I spent last year collecting and structuring data on UK company debt. I added value by being able to search the data in novel ways. The result was intelligence on pretty much any niche debt market. 

But there was data I couldn't unlock. Data that wasn't supported by legacy API, like:
✅ Location of any property/site/security.
✅ Description of any property/site/security.

This level of data creates insight into niches within niches, for example, different property debt products.

The data is in pdf charge registration documents filed at Companies House. So, we created a process where the AI reads the pdfs to extract the location and the site/security description.

I was blown away by the first set of results. That's when I realised we're at the start of an information revolution. Now we can address the problems of asymmetry of information and the principal-agent problem. In a location-driven, opaque market, this is a superpower!

The benefit for property developers is unbiased information on who's really financing the types of deals in the areas they're interested in.


FYI- I'm not a tech expert. My partner Luke Bussey deals with that side of things.

I can't even deal with iPhone updates 🤷‍♂️.

How AI adds value for property developers

Reading this will be the EASIEST and QUICKEST win debt investors will ever see.

I'll show you how combining information from two publically available sources can help you.

I'm using a real-world example. If you've ever fancied yourself as a detective, join along by clicking the links.

Information Source 1- Archover Business Lending

ArchOver is a P2P business lending platform. Per their website, they state the below. 

Information Source 2- UK Exim Finance Ltd (Co No 08143983)

One of their 2018 defaulted borrowers is UK Exim Finance Ltd. That's hard to find unless you've got software like mine.

Here's what the insolvency practitioner had to say.

"As at the date of our appointment, the Company's total aggregate indebtedness to ArchOver was £4.74M. Interest and charges continue to accrue on their debt unless and until paid in full. Based upon current estimates of anticipated realisations in the Administration, 

ArchOver will suffer a substantial shortfall

 in the recovery of the debt due from the Company".

Page 10, section 5 'estimated outcome for creditors' in Liquidators' statement of receipts and payments to 22 July 2021.

We're just looking at one defaulted borrower from 2018. Their debt of £4.74M makes up the majority of the £5.72M listed as "amount in recovery" by ArchOver for 2018.

One VITAL piece of information is missing from the defaults table. ArchOver doesn't indicate what losses are EXPECTED to amount to.

Read the insolvency practitioners quote and check the defaults table for 2018 again.

I think there's an opportunity for investors to address asymmetry of information themselves.

As an investor, being cynical about how things are categorised and asking the right questions could make a massive difference.

I am critical of the binary categorisation of "amount in recovery" and "actual losses for year". Both do nothing to aid investment decisioning because they DO NOT indicate what losses are EXPECTED to be.

Accountants will be well aware of the accruals principle. That applies equally from an investment perspective.

Answers to these two questions would contribute to an investor making an informed decision.

What are the "EXPECTED LOSSES" for each year?

What has ArchOver COMMUNICATED to investors for the "amounts in recovery"?

You're ENTITLED to ask anything you want. It's your MONEY. You're the VALUE.

If you think you'll make a better decision with an additional column titled "expected losses for year", ask the management to provide it. They'll have communications with the insolvency practitioners. As you've seen in the example of UK Exim Finance Ltd, some of the information is publically available anyway. You just need to know how to find it.

What is ArchOver saying to investors in the defaulted UK Exim Finance loan?

Are they saying they expect to make a full recovery?

Are they saying the owner of Archover will cover the bad debt?

You can use this to corroborate what they're telling you about expected losses. The story should be the same.

BorrowingWell is pivoting to provide investment market intelligence.

My business partner and I spent most of the last eighteen months creating software that analyses publically available data on UK businesses.

If you're an HNWI or you represent a family office please get in touch.

P2P and Private Debt Investment- Case Study

If you're considering debt investment over a P2P platform or some forms of private credit this framework may help.

I'm not Jonny Big Bananas. I'm documenting my background to show what has contributed to my opinions. I DON'T consider myself an EXPERT.

✅ I worked for a P2P business lender for two years. In the final year, I was on their credit committee.

✅ I spent much of last year researching the secured business debt market.

✅ I've spoken with hundreds of non-bank lenders.

✅ I've owned a loan brokerage for the last 18 months.

✅ I'm a fellow of the Association of Chartered Certified Accountants.

✅ I've spoken with scores of insolvency and restructuring professionals while building BusinessWell. A great insight into the wrong end of this market.

✅ I have the advantage of LAM, the tech behind BorrowingWell and BusinessWell.

I'm going to give you five perspectives:

The spread
Risk/Return
The credit case
The business case
Publically available information

These topics cover a good chunk of the fundamentals but not everything.

The difference between what the borrower pays the service provider and what the service provider pays you.

You are not entering a perfect competition market.

They don't all operate the same. Some service providers are low margin high fixed cost operations. That means they need a good volume of borrowers to be cash generative. With that comes pressure to get deals done with other people's money (OPM).

The biggest banana skin is the principal-agent problem.

Will they support loss-making operations?

Have they ever refunded lenders on bad debt?

Will they take over struggling borrowers and service the loan?

All of the above are honourable and show commitment. The question is, will they continue to do so?

UNDERSTAND the value the spread gives you. It may seem high vs the interest you receive. That is JUSTIFIED for the value-adding service providers. A difference of 1%-2% is peanuts if it prevents capital loss.

The principal-agent problem exists for many types of transactions. It's nothing new. Just make sure you get VALUE. Look for experienced teams with track records.

Why does the borrower need the money? That will tell you a lot.

Are they REACTING to a tax bill they weren't expecting?

Are they refinancing existing debt? If so, why can't they repay as planned? How many times have they refinanced already?

Are they PROACTIVELY planning the purchase of fixed assets that will drive growth and improve efficiency?

Three business cases. Which would you say indicates the best management team? Which would you say has the best business case?

If you don't understand the moving parts don't go near the deal. It shouldn't be that hard to explain.

Always think about the principal-agent problem when considering refinances.

Looking at the BUSINESS CASE in isolation is pointless. The CREDIT CASE must be viewed in tandem AND IS WAY MORE IMPORTANT.

If the $hit hits the fan, how quickly can you get ALL OF YOUR CAPITAL BACK? That's the credit case for the loan.

Do the borrowing directors give personal guarantees (PG) worth giving?

If the loan security isn't liquid you aren't getting repaid quickly. If the loan security requires servicing (think WIP for solicitors or accountants), who will be doing and paying for that? The directors who defaulted? How will they be motivated?

Having a liquid and defensively valued asset as loan security can make all the difference.

Some of the qualities I like to see from potential borrowers are:

The ability to repay within the loan term.

Sufficient security (if the loan is secured).

That the loan value is sufficient to execute the business case.

Historically cash generative and forecast to be cash generative.

That historically the business retained enough cash to meet its obligations.

An acceptable interest cover or satisfactory cash generation to loan service cover ratio.

Conversion of shareholder debt to equity, or willingness to subordinate shareholder debt.

Loan proceeds are spent on the stated purpose.

The business is reporting on time and meeting its targets and obligations.

Qualities I don't like to see from potential borrowers:

Historically late reporting (refinances).

Running out of cash due to poor planning (reactive).

Lack of communication with the lender (refinances).

Some sectors e.g. life sciences, arms manufacture, gambling.

The business or directors have a history of debt enforcement.

That post loan: financial performance and position are adverse vs forecast.

Multiple companies under common control with non-coterminous year ends.

The loan proceeds are deployed to support the lifestyle of the owners rather than a business reason.

Your lender will likely use software to perform background checks on potential borrowers. That should be part of their value-add.

You can use publically available information to SELECT YOUR SERVICE PROVIDER or review individual borrowing opportunities. Some examples are below:

If you use specialist software, such as mine, you'll be able to look at the loan volume, track record and background of the vehicle and people you're considering using.

If you're not looking at their track record, you're not doing all you can to defend your wealth. As Gordon Gekko said 'a fool and his money are lucky enough to get together in the first place.'

You ain't swinging for 10xers in this part of your portfolio.

If you're not diversified, one small mistake can cost you. Consider CONCENTRATION risk from several perspectives. Here are a few to get you thinking:

This article doesn't address everything you need to know.

I wrote it because there isn't much content on this topic from someone like mine's perspective.

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