Unsecured P2P lending platforms suggest that lenders reduce risk by spreading ... www.proplend.com call. +44 (0) 203 397
5 Interesting Facts about the Peer to Peer (P2P) Market
1 P2P is not crowdfunding PEER TO PEER LENDING
CROWDFUNDING
The practice of unrelated individuals or companies lending money directly to one another circumventing the traditional banking model.
The practice of unrelated individuals or companies coming together to directly buy an equity share in a property venture.
DEBT
EQUITY
You are lending directly to the owner of the property.
You are a shareholder in the company that owns the property.
LENDER
INCOME
Lower
INVESTOR
TYPE OF RETURN LEVEL OF EXPECTED RETURNS
CAPITAL GAIN
Higher
1st legal charge
SECURITY
Share Certificate
FCA Regulated
REGULATION
FCA Regulated
HOW IT WORKS
1st
PRIORITY OF REPAYMENT
EQUITY DEBT
POSITION WITHIN THE CAPITAL STRUCTURE
Lower
In case of default, the property can be repossessed and sold in order to recoup loan amount.
LEVEL OF RISK
LEGAL POSITION
2nd EQUITY DEBT Higher If the property fails to perform, the investor bears the risk of capital loss. Equity takes the first loss position.
2 There are 3 types of P2P lending CONSUMER LENDING Predominantly small, unsecure loans to individuals. Most frequently used for funding purchases, for example weddings, holidays or home improvements or debt consolidation.
SME BUSINESS LENDING Small loans to trading Limited Companies. Loans can be secured or unsecured against a company’s assets or personal guarantee from directors or shareholders. Most frequently used for working capital, business expansion and asset finance.
PROPERTY LENDING Loans to Limited Companies or individuals. Loans are supported by a first legal charge over a property; if the borrower fails to repay, the property can be resold to redeem the loan. Most frequently used for personal mortgages, buy to lets, residential refurbishment and commercial loans.
3 It is possible to reduce the risk associated with P2P lending Unsecured P2P lending platforms suggest that lenders reduce risk by spreading their loan portfolio across hundreds or thousands of loans. They also offer a ‘provision fund’ which is set at roughly 2% of their outstanding loan amount on the platform. If a borrower fails to repay, the lender can apply to the ‘provision fund’ for redress. Another way to reduce risk is to have the borrower pledge an asset as security. The most traditional form of security is a property. If the borrower doesn’t repay the loan, the asset can be sold and the proceeds used to repay the lenders.
4 Not all P2P platforms use the same model THE TRADITIONAL P2P MODEL: The borrower puts their loan requirement on the platform and invites lenders to participate, the borrower receives the loan only once it is fully funded. The funding process is either via an auction, where lenders compete with each other to fund the loan at the lowest rate, or a fixed rate ‘auction’. In both cases the lender is in control and can decide on a loan by loan basis what to participate in.
THE MARKETPLACE LENDING MODEL: The platform, or the platform’s finance partner, underwrites and completes the loan with the borrower, then sells the loan on the platform to interested lenders. This model doesn’t usually give lenders the opportunity to decide which loans to invest in and therefore removes the transparency between borrower and lender. The auto allocation facility gives a better diversification across the lenders' loan portfolio.
5 P2P is a way to invest for income
*after fees but before bad debt and tax
Savers, in particular those in retirement, have been hit hard by the historically low interest rates, with many seeking riskier investments or being forced to drawdown capital.
By receiving interest directly from the borrower, lenders (investors) receive a much higher return on their money and it cuts out the need for a bank in the process.
Lenders recieve a fixed income for a fixed period of time with capital returned over the same period, or as a single payment at the end of the loan term.
Contact us: For further information and to see our current lending opportunities please get in touch.
visit www.proplend.com call +44 (0) 203 397 8290 email
[email protected] follow @proplend
PROPLEND Proplend is a P2P Lending Platform specialising in Secured Commercial Property loans. The loans made through the platform are supported by a first legal charge over income producing commercial property. Our experts assess each case on a loan by loan basis, only putting forward the loans that meet our strict criteria. Our innovative loan tranche system means that investors with different risk profiles and return requirements can all participate in the same loan. The tranching system breaks a loan down into a maximum of three loan to value based tranches. Each tranche pays a different interest rate depending on its position in the capital structure.
visit www.proplend.com
call +44 (0) 203 397 8290
email
[email protected]
follow @proplend
Proplend Ltd registered office is 145-157 St John St, London, EC1V 4PW (Company Number: 08315922). Proplend Ltd is authorised and regulated by the Financial Conduct Authority, and entered on the Financial Services Register under firm registration number 662661. Proplend Ltd is not covered by the Financial Services Compensation Scheme. Your capital is at risk and interest payments are not guaranteed if the borrower defaults.
