Sancus Group Holdings Limited and its subsidiaries (“Sancus”) arrange and administer loans, connecting funders with borrowers and providing a framework for the payment and collection of monies. In the UK, Sancus Funding Limited is authorised by the Financial Conduct Authority (“FCA”) to carry out the regulated activity of operating an electronic platform in relation to lending (commonly referred to as marketplace lending).
Sancus is committed to full transparency and open communication. It seeks to ensure that those who participate in loans through the Sancus platform (“Co-Funders”) have access to all necessary information in order to make an informed decision whether to participate in a particular loan opportunity to a prospective borrower (“Borrower”). Sancus does not provide financial, legal, tax or other advice to Co-Funders or Borrowers or give any assurance as to the suitability of a loan to their financial situation.
Before participating in a loan, Co-Funders should review the following information, together with the Co-Funder Terms & Conditions and Risk Warning (below).
- Nature of P2P agreements
- Loan Agreement: By participating in a loan opportunity through the Sancus platform, Co-Funders are entering into a loan agreement with the relevant Borrower. Co-Funders’ capital is at risk if a Borrower is unable to repay. Unlike deposit accounts with banks, Co-Funder loans are not protected by government compensation schemes (such as the Financial Services Compensation Scheme in the UK).
- Loan Types: Loans arranged by Sancus are asset-backed loans, generally used by the Borrower for property development or bridging purposes. Each loan benefits from security, the form of which varies from loan to loan. It will typically include a first-ranking charge on property (real estate or land) and, in the case of loans to companies, personal guarantees of directors or shareholders, a legal charge over the share capital of the Borrower and an all-assets debenture granted by the Borrower. The security package applicable to a specific loan opportunity is detailed on the Sancus platform.
- Security Trustee: Security is held on trust by a Sancus affiliate company on behalf of Co-Funders. This is intended to ensure that, in the event of a Sancus insolvency, these assets are ring-fenced for Co-Funders and not available to creditors of Sancus.
- Returns: Loan details are displayed on the Sancus platform, specifying the amount of the loan, its term and interest details, including when interest is payable, the interest rate payable by the Borrower and the interest rate due to Co-Funders. The interest rate due to Co-Funders is the expected interest rate only and does not consider potential defaults or any tax which a Co-Funder may be liable to pay, both of which could materially impact the actual return earned by a Co-Funder.
- Loan Pricing: The price of a loan, which is reflected in the relevant Borrower and Co-Funder interest rates, is determined by the credit committee. Sancus retains any difference between the interest rate payable by the Borrower and that due to Co-Funders and charges Borrowers commitment and arrangement fees (usually calculated as a percentage of the loan amount), some of which may be shared with brokers, introducers or other third parties. In some cases, Borrowers will also be required pay an exit fee to Sancus on final repayment of the loan.
- Performance Information: Sancus publishes information about expected and actual default rates (including the relevant assumptions used). This information is available to Co-Funders through the platform and is based on loan performance during the complete previous financial year, which runs from 1 January to 31 December.
- Risk assessment and due diligence
- Borrower Checks: In accordance with Anti-Money Laundering (AML) requirements, Sancus completes Know Your Customer (KYC) checks with respect to each Borrower.
- Credit Assessment: Sancus conducts a credit assessment of each loan application. Critical to this is understanding the collateral (i.e. assessing the assets on which the loan is secured) and covenant of the Borrower or guarantor (i.e. evaluating their willingness and ability to meet their financial obligations under the loan). As part of its credit risk management, Sancus will typically:
- Visit the relevant property/site;
- Meet the relevant Borrower/guarantor in person;
- Obtain a RICS valuation report in respect of the underlying assets;
- Appoint solicitors to complete legal documentation and perfect security;
- Take a first ranking legal charge over the underlying assets;
- Lend only a portion of the asset value (usually not more than 65%).
- Credit Process: Loan proposals are considered at credit committee and require unanimous consent for approval. A credit assessment involves making subjective judgments based on experience. Approval of a loan opportunity at credit committee does not constitute a recommendation to Co-Funders to participate in that opportunity.
- Risk Categories: Loans displayed on the Sancus platform are labelled as either “bridging” or “development” finance opportunities. Development lending introduces construction risk and funding risk and are therefore generally regarded as riskier than bridging loans. However, this will depend on the circumstances of each loan and the relevant Borrower.
- Key Risks: Some of the key risks involved in loans administered on the Sancus platform are described in the Appendix.
- Loan Participation
- Sancus Participation: Affiliates of Sancus may participate in loan opportunities, helping to ensure alignment of interests with Co-Funders.
- Loan Information: Information in relation to each loan opportunity is made available to Co-Funders through an online platform, including (among other information) an initial credit assessment, valuation reports, site visit notes, asset and liability statements of Borrowers or guarantors and a report on title.
- Commitment Process: Following review of the information in relation to a loan opportunity, Co-Funders may submit a request to participate in that loan, specifying the amount they wish to commit (subject to a minimum of £100,000). Co-Funders are required to deposit the amount committed into the client money account ahead of drawdown under the loan in order that Sancus can complete the advance in a timely manner.
- Monies: Co-Funder monies held by Sancus (being sums received from Co-Funders pending deployment or sums received from Borrowers in respect of the payment of capital or interest on a loan) are held in a client account with Barclays Bank plc or Metro Bank plc. This is a trust account and, as such, these monies cannot be used for Sancus’ own business purposes.
- Interest: Interest may be serviced (usually payable monthly or quarterly) or rolled-up (payable on maturity of the loan). Some development loans may be drawn in stages, with subsequent drawings only being made available following the project meeting certain monitoring criteria.
- Tax Deductions: No tax is deducted at source by Sancus so Co-Funder returns are paid gross (unless required by law). Co-Funders are responsible for payment of any tax due by them to any relevant tax authority (such as HMRC in the UK).
- Tax Reporting: Sancus will make available to Co-Funders information with respect to the capital and interest received on loans, allowing Co-Funders to handle their own tax affairs. Sancus may be obliged to share certain information about interest received with certain tax authorities through the Common Reporting Standard (CRS) and regulations relating to the Automatic Exchange of Information (AEOI).
- Tax Advice: Sancus is not a tax advisor and is not able to offer specific tax advice. Co-Funders should seek their own, independent, tax advice.
- Defaults and recoveries
- General: Borrowers may fail to meet payment obligations under a loan. This can arise for several reasons (e.g. delay on sales or refinancing) and is generally more commonplace in respect of development loans than bridging loans given the additional risks inherent in development financing. Given these uncertainties, Co-Funders should not rely on the repayment of capital or any interest income as part of their cash flow planning.
- Approach to Non-Payment: If a Borrower fails to meet a payment obligation, Sancus will engage with the Borrower on behalf of Co-Funders to understand the reason for non-payment. Sancus will work constructively with the Borrower to identify a solution and may agree to defer payments and extend the term of a loan. This will depend on the circumstances and the behaviour of the Borrower.
- Recovery Process: If Sancus determines that the most appropriate course of action is to proceed to enforcement, it will engage lawyers to issue default proceedings which may involve taking possession of the asset on which the loan is secured (or the company which holds the asset) and making demand under guarantees, where applicable. It can take considerable time for these procedures to run their course. In relation to development loans, drawdowns are typically staged at intervals and Borrowers may default prior to the completion of the intended development works which can impact value materially and cause significant delays in recoveries. In such cases, Sancus may decide to step-in and complete the development to maximise value. Recoveries are managed by a sub-committee of the Sancus credit committee.
- Illiquid Assets: Loans are, by their nature, illiquid assets which are not readily realisable or traded on an active market (unlike listed securities, for example).
- Secondary Market: Co-Funders wishing to sell all or part (minimum £100k) of their participation in a performing loan may be able to do so through Sancus. This depends on whether another Co-Funder is willing to purchase the position, which cannot be guaranteed.
- Wind-Down Plan
- Purpose: Sancus has in place a wind-down plan which is designed to achieve an orderly run-off of the loan book in the case of insolvency or any other event leading to Sancus not being able to carry on administering the loan portfolio.
- Form: Under the wind-down plan, GLI Finance Limited (the AIM listed alternative finance business and ultimate parent company of Sancus) has committed to ensure that adequate financial resource for Sancus to continue managing and administering the loan-book until it has been fully wound-down. The wind-down plan is published on the platform.
Lending involves a number of risks which could result in a Borrower failing to meet its payment obligations under a loan, potentially leading to losses for Co-Funders.
Set out below is a general overview of the key risks. While Sancus takes measures to try and mitigate these risks, they can never be entirely eliminated. Co-Funders should ensure that they understand these risks and may wish to diversify their risk exposure by participating across a range of loans.
|1. Planning Risk||The risk that planning permission is not granted in the form anticipated or is granted subject to onerous conditions|
|2. Construction Risk||The risk that construction works are not completed, do not meet required finish or legal requirements or cost more than anticipated|
|3. Funding Risk||The risk that funding is not available to meet on-going draw down requests by a borrower under a development finance facility|
|4. Sales or Liquidity Risk||The risk that an asset cannot be sold in a timely manner at or near expected value|
|5. Market Risk||The risk that economic or market conditions negatively impact the value of an asset or the ability to refinance it|
|6. Security Risk||The risk that the security over an asset is not properly constituted rendering it unenforceable|
|7. Fraud Risk||The risk that a party supplies false information (or omits material information) with the purpose of misleading to make financial gain|
|8. Valuation Risk||The risk that the value attributed to an asset (e.g. in a professional valuation report) is inaccurate|
|9. Legal Risk||The risk that legal documentation is incomplete or unenforceable, or of an adverse change in law|
Risk Warning: You could lose all or part of your capital. Indicated returns, unless otherwise stated, are shown before any provision for bad debts and may be subject to tax.
Funding through Sancus is entirely at your own risk and the decision whether or not to is solely yours. The return on any funding opportunity is dependent on a number of factors and cannot be guaranteed. We cannot give assurances as to the creditworthiness of any borrowers, the collectability of any repayment, the quality and accuracy of any information obtained in respect of any funding opportunity or the enforceability of any security. In the event of a default, the timescales and outcome of any recovery is inherently uncertain. By using the platform, you knowingly accept the foregoing risks and you further accept that the role of Sancus is limited to providing an online marketplace for users and that information obtained from Sancus does not constitute legal, financial, tax or other advice or recommendation in relation to a funding opportunity, and you will conduct your own research and form your own opinion as to whether or not to participate in a funding opportunity. There is no recourse to the Financial Services Compensation Scheme, or other such government run compensation schemes.
The UK platform is operated by Sancus Funding Limited, a UK incorporated company which is authorised and regulated by the Financial Conduct Authority, firm reference number 593992.