The best P2P investors 'read between the lines'
Most P2P investment sites provide a lot of information about the loans they offer. There will be information about the borrower, the purpose of the loan, and what the loan collateral is (if any). Often the information provided will be very positive about all aspects of each loan and each borrower. Some investment risks may not be addressed fully or will be totally ‘glossed over’. It can take time to gain experience and know what things to look for.
Our goal is to help P2P investors of all experience levels find the very best opportunities and avoid potential mistakes. The post below is meant to be a little provocative, but hopefully informative and fun. We’ve listed some common statements we see made on P2P investment sites and what they can sometimes REALLY mean. This is just a starting list though – we welcome all our readers to give their thoughts and also contribute some new ones by adding them in the comments below.
"The loan is to provide working capital to the company"
Sometimes means:
The company is running out of cash and needs to borrow more money to stay in business
"The collateral is a guarantee from a director of the company"
Actually means:
There isn't any collateral. The director is going to be insolvent anyway if this project fails, or will have given all his assets to his family.
The min loan target size is X, the max loan target is Y
Actually means:
The company wants to borrow as much as it can, but we are not sure how much investors are really willing to fund it. We will set a big range so no-one gets embarased
"This is a development loan stage 1"
Usually means:
The loan is secured on a land plot, which has had some holes dug in it. The project is going to take a long time to finish.
"This is a development loan stage 12"
Nearly always means:
Wow. This project hasn't gone well. It's taken a lot longer, and cost a lot more than we expected. But we need some more money to get it finished. Please....
"The loan will be repaid by refinancing, the sale of the collateral
property, or from the incoming business revenues of the company"
Actually means:
No one is really sure how the loan will be repaid, hopefully the loan-to-value ratio is low enough that it doesn't really matter.
"We give this loan a B rating"
Usually means:
We have an internal loan rating system that no one understands, we haven't explained it to anyone, and it has no track record but it sounds good. Trust us.
"The company grew its revenues by 20% last year"
Can mean:
Just don't ask us about profit though because the company keeps losing money....
"This loan has 2% cashback"
Can sometimes mean:
We are finding it really, really hard to find investors who want to buy this loan and reduce our exposure. There is something about it that other investors don't like. The borrower is willing to pay a higher interest rate because they really need this loan to be fully subscribed.
"The loan is secured on a crypto mining rig"
Always means:
Crypto is cool right? If crypto values go up we think we could get your money back plus a lot of interest interest. If not, well....
"You can purchase this loan through fiat currency or our ICO token"
Might mean:
Yes this looks like we are operating a real P2P investment site but the way we are really making money is to sell people our 'coins'. But if you want to give us pounds or euros we will accept those too.
"This is a refinancing of an existing loan"
Can sometimes mean:
We first sold this loan 9 months ago. We think this loan is still OK, but things haven't gone exactly to plan. The borrower can't repay us right now, and has not been able to sell the collateral. But hey - let's refinance the old loan with a new loan and hope everyone is cool with that.
Thank you, I love reading your blog. This is spot on.
this tips are good, but we shoud ask ourselves why somebody is willing to pay 10-14 % interest instead of 5-9% if they get the loan from a bank. Probably because the bank doesn’t like something (the borrower or the collateral property). So we should expect that some problem may occur.
Nice and clear article
Nice one, thank you!