We have taken two steps to ensure that when an auction is launched on our platform, the Borrowers have certainty that they will have a loan when the auction closes and Lenders know they can start earning interest immediately on all successful bids.
The Borrower is committed before the auction starts.
Before the auction begins, the Borrower completes legal documentation committing to accept a loan, provided that the average rate of interest achieved in the auction is at, or below, a maximum rate (known as the Reserve Rate). This means that there is no delay after the auction while the Borrower signs documentation – and no risk that the Borrower will withdraw because they change their mind.
We have arrangements with Investors to ensure that auctions are fully taken up at the Reserve Rate.
We have a wide range of investors, with individuals being able to participate in loans from £25 upwards. We also have some larger investors, who regularly invest £1000 or more in each auction. Some of these larger investors are individuals. Others include pension funds and companies. One of our corporate investors, GLI Finance Ltd (GLIF), a company whose shares are listed on AIM and a shareholder in FundingKnight, has agreed to participate in each auction and invest in whatever proportion of the loan which is not taken up by other investors. It does this by bidding in the auction alongside other investors. These bids are placed gradually during the life of the auction and all bids are at the Reserve Rate. GLIF ceases to bid when the Reserve Rate for the auction has been met.
By bidding in this way, GLIF is putting its interest in the loan behind other investors. Any investor bidding at the Reserve Rate early in the auction will rank ahead of GLIF. Any investor bidding at below the Reserve Rate at any time in the auction will always rank ahead of GLIF, so if an auction proves particularly popular and is fully taken up by competitive bids at below the Reserve Rate, GLIF will not be able to participate in the loan. However, if an auction is less popular and investors will only bid at rates above the Reserve Rate, GLIF will be the lowest bidder and will be obliged to take up a large proportion of the loan.
These two steps ensure that when the auction closes, the Borrower is paid on the same day and Lenders start to earn interest immediately.