Discussion
cardigankid said:
Plus 8.9% if that is the APR is now a better deal than you will actually get from the big banks even if they are prepared to lend to you at all. Wonga.com (which in my opinion is a criminal enterprise which it is disgraceful that the Government allows and will undoubtedly come back to bite them - at which point we will see them nodding their heads sagely and saying 'lessons have been learnt') is planning to lend to businesses at the same extortionate rates they lend to punters. Businesses are expected to borrow at 4000% likely to pay their Tax, VAT NI and PAYE bills! This country really is run by a bunch of corrupt amateurs.
You don't understand what APR actually means do you.swerni said:
As I said before, I think what he did was brilliant and he is an inspirational individual, but what he did was prove a point, note create a viable business IMHO.
Exactly what I was thinking.Didn't they say at the end of ep2 that 98% of the borrowers paid on time?
I wonder what the statistics would be nationwide if the banks lent abit more.
swerni said:
No cash in = no cash to lend = no bank.
Even if television were not involved, you are not going to set up any business, never mind a bank, with no capital. Some businesses do very well indeed just lending and not taking deposits at all, as I am sure you know.Even though television is involved, it does not mean the business does not work, you could hardly get better advertising. So it costs you £9,000. Cheap, I would have thought.
swerni said:
So lending money to a sub prime market and making 8.9% gross margin sounds like a solid business plan?
I think the point is this isn't a sub-prime market. The people he was lending to (at least on the programme) were businesses wanting to grow through investment, that he could visit and assess. These are people who banks would quite happily have loaned to a decade ago, but their fear of any risk whatsoever in the current environment has made it extraordinarily hard to borrow. The government and various business bodies have identified this as a serious problem. As it is, his repayment rate was 98%, which is acceptable.Even in a sub prime market, you can profit - the loan rate reflects the risk. The issue with the global banks was that the risk was hidden by repackaging the loans via complex derivative products.
Tuna said:
swerni said:
So lending money to a sub prime market and making 8.9% gross margin sounds like a solid business plan?
I think the point is this isn't a sub-prime market. The people he was lending to (at least on the programme) were businesses wanting to grow through investment, that he could visit and assess. These are people who banks would quite happily have loaned to a decade ago.As for the money given to charity, from a purely cynical point of view I would say that the publicity and goodwill gained were far in excess of the cost to his business. Or do you disagree Swerni? I said earlier I would prefer to see him building up his capital position to create a strong business than throwing cash round the charity shops, but given that he has way more capital than that, I am sure that RBS spend a lot more than £9000 on PR to achieve a great deal less, often just to achieve hatred in fact.
swerni said:
you could call it £9k or you could call it 100% of his "potential" profit.
I hate repeating myself but it's not profit until all his loans have been paid off.
At risk of pedantry, in an ongoing concern, the loans would never be in a state of 100% paid off. This is why a default rate is calculated & also why we have balance sheets as well as P&L accounts. Unless the business is being wound up, it would be impossible to state the exact default rate and therefore the exact level of profit. The business has to take a view at a given point in time. In this case it was after six months.I hate repeating myself but it's not profit until all his loans have been paid off.
It doesn't matter how he worked out that it was profit, it was £9000 from his pretty deep pocket for £1m worth of free publicity and goodwill. So forget the £9000.
I would have thought that if you can lend at 9% and take deposits at 5% there should be a margin depending on the level of overhead and bad debt. None of us really knows whether his business works or not, so none of us can prove it, but he is at least open and trading, and time will tell.
What he is doing as I see it has nothing to do with subprime lending. The big issue which many of us and I for one have with the big banks is how they judge whether to lend to a particular applicant or not. Their headline borrowing rate is also 8.9%, no coincidence, but the difference comes when you try to borrow money at that rate. Most people as individuals can certainly not if they are working part time or on contract which is increasingly the case. What the banks do is set policies from on high which relatively inexperienced and overworked account managers apply often without regard to the actual facts of the situation. That is no way to define 'subprime', and that is the problem. What Dave does, or appears to, is sit down with the potential borrowers, look at their position in detail, and judge whether to lend them money. That is the correct and best way to do it, and the way most banks did it in the past, but not now.
I earnestly hope that he succeeds, because the big banks right now are just vampires drinking the nations economic blood, and it can't go on.
I would have thought that if you can lend at 9% and take deposits at 5% there should be a margin depending on the level of overhead and bad debt. None of us really knows whether his business works or not, so none of us can prove it, but he is at least open and trading, and time will tell.
What he is doing as I see it has nothing to do with subprime lending. The big issue which many of us and I for one have with the big banks is how they judge whether to lend to a particular applicant or not. Their headline borrowing rate is also 8.9%, no coincidence, but the difference comes when you try to borrow money at that rate. Most people as individuals can certainly not if they are working part time or on contract which is increasingly the case. What the banks do is set policies from on high which relatively inexperienced and overworked account managers apply often without regard to the actual facts of the situation. That is no way to define 'subprime', and that is the problem. What Dave does, or appears to, is sit down with the potential borrowers, look at their position in detail, and judge whether to lend them money. That is the correct and best way to do it, and the way most banks did it in the past, but not now.
I earnestly hope that he succeeds, because the big banks right now are just vampires drinking the nations economic blood, and it can't go on.
cardigankid said:
It doesn't matter how he worked out that it was profit, it was £9000 from his pretty deep pocket for £1m worth of free publicity and goodwill. So forget the £9000.
I can't let that go. It does matter how it was worked out. The bank of Dave is no different from any other business - it needs investment to begin trading. It's irrelevant whether or not it came from Dave the whole of the point of the whole of the show was that others cannot get that very same investment to work up their businesses. So I can't forget the £9k No business invests whatever it was £100k, £250k etc. in six months, produces £9k at the end & says look at us, we're a success! It's a long haul & it's lent finance that underwrites it.I accept that Dave is promoting a wider agenda than simply to see if a return to old fashioned banking values will serve the community better than the automated behemoths we have today, but underlying it was the central principle that you have to speculate to accumulate & there's more than one way of doing it.
cardigankid said:
I earnestly hope that he succeeds, because the big banks right now are just vampires drinking the nations economic blood, and it can't go on.
Nicely put.Dave was too concerned with charities to be an effective business, but the principle - namely that the current system stinks - is very sound.
(But how was what Dave proposed different from Zopa, Funding Circle etc?)
The idea is this.
Local lending and local saving.
Any profit (so after wages and rent is paid) is paid to charities - this is to stop the situation where the bank builds up significant funds and the focus of the business becomes on making extortionate profits and over extending itself to give the staff large bonuses..
Local lending and local saving.
Any profit (so after wages and rent is paid) is paid to charities - this is to stop the situation where the bank builds up significant funds and the focus of the business becomes on making extortionate profits and over extending itself to give the staff large bonuses..
<quote>
The most he can make is 3.9% gross margin.
He has already said he expects 2% bad debt ( which is unrealistic) but hey, lets go with it.
That reduces his margin to 1.9% before any overheads.
<quote/>
How does 2% of expected overall bad debt reduce his overall margin from 3.9% to 1.9% ??
The most he can make is 3.9% gross margin.
He has already said he expects 2% bad debt ( which is unrealistic) but hey, lets go with it.
That reduces his margin to 1.9% before any overheads.
<quote/>
How does 2% of expected overall bad debt reduce his overall margin from 3.9% to 1.9% ??
At the end of the day it MAY or MAY NOT suffer from excessive bad debt.
It MAY or MAY NOT turn a profit.
It MAY OR MAY NOT be scalable.
But RIGHT NOW it seems that it's helping local business expand, it's putting money into the local economy and helping some charities along the way.
Good on them I say!
Let's argue the facts in a year or so's time.
It MAY or MAY NOT turn a profit.
It MAY OR MAY NOT be scalable.
But RIGHT NOW it seems that it's helping local business expand, it's putting money into the local economy and helping some charities along the way.
Good on them I say!
Let's argue the facts in a year or so's time.
Some time ago I mocked Dave due to the advert for his business that I'd seen on TV, I'd like to retract my mockery now, I like him.
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