Category Archives: For Investors

What is peer-to-peer or marketplace lending?

Are you sick of the high interest rates that come with personal loans or business loans from major lenders? Well, fear not. A new trend called peer to peer lending, or P2P, or marketplace lending may be of interest to you. It’s quite popular around the world, however, has been in Australia only for a few years now.

This method lets you borrow money directly from the investors and that all at a lower rate. This eliminates the need for banks or credit card or finance companies to get involved.

So, how does it work and what are the benefits? Read below to find out:

What is peer to peer or marketplace lending?

For borrowers, peer-to-peer or marketplace lending acts as an inexpensive and flexible alternative to costly personal loans, business loans from banks, or non-bank financial companies.

Peer-to-peer or marketplace lending is an affordable alternative to expensive bank or non-bank financial company loans. For lenders looking for better returns than term deposits, this method offers them a way to invest with higher returns, typically greater than 3-4% more than a term deposit.

How does Peer-to-Peer or marketplace lending work?

It’s quite straightforward. A borrower puts a loan listing in the marketplace, the borrower can set the term, tell the investors why they should invest and the auction begins. It’s like eBay for finance, and investors bid on the listing up to an interest rate cap to purchase a fraction of the loan. When there are sufficient bids to cover 100% of the loan listing, the loan is settled.
Compared to a big bank or non-bank financial company, Peer-to-Peer or marketplace lending comes with less overall costs, more flexibility and transparency. Finally, it is also very easy, this whole process can be completed in as little as a few hours, and the money is advanced.

What are the benefits for borrowers?

With a simple application that can be filled online and a low interest rate at hand, peer to peer lending, marketplace lending or P2P lending as it is colloquially called, is a great solution for Australian borrowers. You can borrow from $10000 and upwards, even A$5,000,000 if you have the right credentials. There are no hidden fees and it is very quick. Think about it, a business loan advance in one day at a rate lower than bank rates, isn’t this great?

What are the benefits for peer to peer or marketplace lenders?

Not only is peer to peer or marketplace lending great for borrowers, lenders benefit significantly from it too. With features like low operating costs, high yields over a short time, and an easy way to exit the investment make it the new way to invest. Why should the bank get the return on loans and give you a paltry return on your deposit? Here is a question: do you know where your money is used when you deposit money in the bank? NO

With peer to peer lending, or marketplace lending, you DO. You can see where you invest and what the returns are in real time.

If you think back to how lending began, it was people lending to other people. All that has changed here is that the advent of the internet has enabled peers to lend to people without having to know them personally.

The Danger of “Status Quo”, Credit Card Surcharges, and Interest Rate gouging

Why it is important to stop anti-competitive behaviour in its tracks?

Humans are strange; we are so very opposed to change before it happens and shortly after it happens, but after some time has passed, we quickly adapt. We forget why we are angry, and accept it. This is dangerous behaviour.

Banks, like any institution, hold a lot of clout, politically and financially. An oligarch or four banks governs Australia’s finance, and Australians have grown to accept their behaviour. The banks tell us their questionable behaviour is for “the minimization of risk, and the stability of the sector”, and we accept that. Similarly, many merchants have been abusing their ability to charge credit card surcharges, gouging consumers who choose to use credit.
Over the last few months, the Government began to crack down on this behaviour. So have the people. We realize the ridiculousness of these status quos. Most recently, Westpac has placed an increase of 20 basis points onto their consumer mortgage accounts. This was implemented after the RBA made several interest rate cuts in the last year; the most recent being an interest rate cut in May by 25 basis points, down to 2%. In the same vein, Government regulators have ordered major banks to increase their capital relative to loans; a method to insure that the banks do not collapse as a result of a housing bust.
Instead of lowering their profits, they have passed the costs of this regulation onto the consumer. I think I speak for most Australians when I say I find this ridiculous.

In contrast to many other OECD countries, Australia is governed by these banking oligarchs. They gobbled up our smaller banks after the GFC and we were left with a sector that lacks any sort of competition. The disparity between term deposit interest payments and mortgage interest payments is shocking and unfair. Lack of competition and complete market dominance almost always leads to inefficient solutions. These are solutions where consumers feel helpless, but have to rely on them. I think this is changing, at least I’d like to hope so.

On a positive note, it doesn’t have to be the businesses that change. In this circumstance, I think the technology is changing. Peer to Peer lending or marketplace lending as it is also known globally is allowing us to access a whole range of financial instruments that weren’t available before, and prices that were not available before.

We’re able to acquire trade credit, debtor financing, personal loans, car loans and business loans on reasonable terms. We’re able to choose from a range of different offers from competing platforms, and choose the most competitive option.

P2P lending is disruptive, and it’s here to stay.

Life isn’t linear, why should credit reporting be?

Everyone has been through ups and downs in life. Do we, as a society, measure one’s worth only on their negative experiences? Does a company only assess the times where you have been in a bad position or unemployed before hiring you? No. Merit is not developed simply by having a limited number of negative experiences, so why should credit be?

 

Before 2014, Australian credit was established through negative reporting. Lenders would assess a potential client based on the recorded negative instances on their credit history. Current accounts, closed and opened accounts, payment dates, and many other variables that play an important part in credit assessment would be ignored. It doesn’t sound like a very useful or intuitive system, does it?

 

In 2014, we adopted comprehensive credit reporting. A method that incorporates the aforementioned variables into the credit reporting system, and allows creditors to give a more in-depth assessment of the clients it evaluates.

 

Let’s talk about the impacts this has on Australians as a whole. I’d like to believe that Australians are hopeful and innovative people. Some of the greatest entrepreneurs I know, and some of the wealthiest people I know came from humble beginnings, and rocky starts. Sometimes rocky starts are essential for business development, as they teach a valuable lesson. Mortgages, credit cards and personal loans play such a massive role in life, and to be denied access to the best possible option, simply because you made a few mistakes in your 20s doesn’t seem fair.

 

I think most rational credit assessors would echo this sentiment. Credit assessments should attempt to analyse and recognize lives, rather than a few variables. This might sound naïve, and I realize that the costs of this are high, but I believe by using statistics that closely match this, we have higher loan origination and a stronger and more active economy overall.

 

This highlights another important factor where P2P lending pulls ahead. P2P lending lets each investor exercise their own discretion. It isn’t defined by rigid statistics or legislation. Simply put, P2P lending benefits both the lender and the borrower, especially in the aforementioned situations. Rational investors, who understand how businesses succeed and fail, are able to make investment decisions without adhering to an archaic piece of legislation. Borrowers, who may have not been able to get a loan because of a company policy or a clause in legislation, are able to gain access to finance. Of course, they have higher interest rate repayments because of a dynamic risk premium, but they are still allowed access to finance, rather than simply being denied.

 

Ideas, businesses, and people are fluid. We’ve all had ebbs and flows in our lives. Some ideas work, some ideas don’t. We’ve had business experiences that have flourished and others that have failed. We leave these experiences with knowledge, and the ability to improve. I would trust someone who has made mistakes in business and learned from them, rather than someone who has never dabbled in business, and hence has a clean slate.

The Falling Australian Dollar

When many people think of the idea of a “weaker” Australian dollar, they seem to panic. It’s spread all over the media and positioned as if it was a recession or natural disaster. For investors, the issue is working out the consequences of a falling Australian dollar and the benefits. But first, let’s find the root of the falling Australian dollar, and work upward from there.

 

So, what are some of the possible reasons for a falling Aussie dollar? It isn’t a straightforward answer. It is a sum of certain things happening in the global macro economy over the last few years. The first possible reason is one to do with monetary policy. Many large nations across the globe took part in aggressive quantitative easing over the last 6-7 years. When we increase the volume of a currency, the relative buying power or value of the Australian dollar increases.

 

In addition to this, as growth slows in China, we see a contraction in demand within the commodities market; leading to a plummet in the price of iron ore.

 

A weak Australian dollar isn’t only bad news. The Australian dollar’s strength over the last few years has resulted in a loss of competitiveness within the global economy. A weak dollar should give back some of our much needed competitiveness and contribute to an increase in the volume of net exports. Sectors like tourism, international education, and foreign investment will experience a boost, whilst many of our domestic importers will feel their belts tighten and prices increase.

 

So what’s the market like for an investor? Commodities are not in the greatest place right now, they are sliding down and don’t look to be picking up in the next few weeks. You’ll probably see an increase in demand for domestic goods, instead of buying online from overseas. Companies that rely on exporting overseas and catering to Australian consumers as well are the most attractive investments in these times. The easiest way to do that is through P2P (marketplace) lending, where the borrower is a private company, it’s hard to invest into private companies without connections, and certain Australian marketplace lenders offer investments into lucrative corporate opportunities.

 

In conclusion, a falling dollar isn’t a bad thing at all. It’s probably good news for us right now; there are much bigger fish to fry within the Australian economy. Most diversified portfolios will be able to sustain themselves through this period of economic down turn.

 

Leo Tyndall, CEO of Marketlend,  a P2P lender, Marketlend at marketlend.com.au.

This is not an advice, and any investor should seek independent financial advice prior to investing.

Why P2P facilitators have to have ‘skin in the game’

An un-named regional bank made an unusual statement in an article I read recently;

“Depositors lend them the money, not the individuals.”

 

In my opinion, the comment seems naïve, as I cannot possibly imagine that the majority of depositors see that they are the lenders themselves. The GFC demonstrated that many well-known banks had used depositors’ money to invest into assets that were considerably riskier than what the depositors believed.

 

Many have misconstrued the original concept of P2P lending. In essence, P2P lending is the idea that one party acts as a lender to a stranger, using the facilitators’ guarantee and research as a risk indicator. In contrast, if you are putting money into a fund, a managed investment scheme or debenture scheme, you are not lending to a peer, but you are investing in the facilitator.

 

P2P lending has been a hot topic recently, but it isn’t very clear what the P2P facilitators have invested themselves. By invested, I’m referring to the loss position that they take in the event of a failure of the loan.

 

In a recent interview, the interviewer stated that he believed that a P2P facilitator is unaffected by a recession because they are merely a service provider, not an investor. I corrected him; Marketlend always invests with the investor and takes a first-loss position.

 

It has been proven, over and over again, that a debt facilitator that has their own personal investment within the debts offered, has a lot more tenancy to ensure the realisation or return of those assets in a time of crisis. I refer to this as “skin in the game”.

 

I find that many investors aren’t aware of this, until a crisis occurs. It’s important to draw the fine line between what is and what isn’t having “skin in the game”.

 

Investments into their own personal businesses and provision funds withheld from the borrower, isn’t having “skin in the game”. “Skin in the game” is demonstrating that they have full confidence in the borrower, by using their own money to fund a part of the loan.

 

So when you’re looking at a peer-to-peer investment,  the question you’ll need to ask yourself is:

“What skin in the game does the peer-to-peer lender have?”

 

Many P2P facilitators describe their “loss provision”. It is a very vague and undefined term, thrown around by the facilitator’s marketing consultants. As an investor, don’t be afraid to ask the following questions.

 

How are the loss provision funds obtained, and what is the source of this money? If it’s from the borrower, is it the same money you gave to the borrower? If it is from the margin to be paid to the P2P facilitator, is it a cost that is being added to you? If so, then it is again, your money.

 

P2P lending is lucrative; it is new and exciting. But like anything, make sure you aren’t exposed as an investor. It is very easy to fall into the trap of investing with the facilitator who has the fastest processing time, especially when the economy is doing well.  However you must make sure you research each facilitator and ensure that that they have a loss protection program available.

 

At Marketlend, we invest in every loan and also offer insurance protection to investors if they choose.

 

Every loan has paid on time, and an average of 12% loss protection has been provided on each loan.

Don’t lend to the peer to peer lender, lend to the peer

Ensure the peer to peer lender has skin in the game, (investment in the loan) and other risk protections

 

In a recent article in the Australian papers, a regional bank made an unusual statement that depositors lend them the money not individuals.

 

The comment seems very naive in that I cannot imagine that majority of depositors see that they are lending money to them. Is this correct, as we saw through the GFC the majority of depositors were surprised to find that banks had used their money to invest into assets that were risky and considerably riskier than the perception of what the bank risk profile was.

 

The whole concept of peer to peer is that you lend to your peers, and it is the fact that the internet enables you to lend to strangers with protection, that is how peer to peer lending works.

 

If you find you are putting money into a fund, a managed investment scheme or debenture scheme, well then, you are not lending to the peer but to the peer to peer lender.

 

There is a lot of hype about peer-to-peer lending in the market in the Australia market at this present moment. However what seems to be missed on a number of occasions is an explanation how the peer to peer lender is invested in the business.

 

What I mean by invested is what loss position they take in the event of a failure of the loan. In a recent interview, the interviewer send to me “well you don’t need to worry about what happens in recession because you won’t suffer any losses as you are just the service provider”

 

My response to him was you’re incorrect in Marketlend we do invest with the investor and taking first loss position.

 

The lessons learned through the global financial crisis, and any other crisis has been that those who have invested in the investment that they are also offering to others have a lot more tenancy to ensure that there is a realisation or return of those assets in such scenarios.

 

Commonly called “skin in the game”

 

So when you’re looking at a peer-to-peer investment, ask yourself is what skin in the game does the peer-to-peer lender have.

 

And this isn’t :

• the investment that they’ve made to build a business
• the provision fund where they’ve held money back from the borrower which is the investors money that is used to set up a provision.
• What it is – The money have they paid in themselves to take losses if such an event.

 

Now there has been some claims by peer to peer lenders that they have a loss provision, so don’t worry.

 

Ask the following questions:

• How are the loss provision funds obtained, what is the source of the money?
• If they are from the borrower, is it the money you gave the borrower and they are taking a piece of it. If so well then it is your money at risk.
• If it is from the margin to be paid to the peer to peer lender, is it a cost that is being added to you? If so then again it is your money.
• Is the loss provision for each individual loan or for the whole pool of loans. If the whole pool of loans then be wary, because if you are carrying the risk of not only your loan but the others in the event of a default, and there may not be enough left to pay you if the other loans default at the same time.

 

It’s a brave new world in the investing in peer to peer lending, and it can be a happy one, but while times are good and the best system with the speediest processing might attractive when times are tough it is the risk protections that will make a difference whether you get your money back.

 

So make sure you pick a good balance between systems and risk protections.

 

At Marketlend, we invest in every loan and also offer insurance protection to investors if they choose.

 

Every loan has paid on time, and an average of 12% loss protection has been provided on each loan

Marketlend submission to the government on Facilitating crowd sourced equity funding and reducing compliance costs for small businesses – CSEF

Introduction

Marketlend itself is not a facilitator of crowd-sourced equity funding. However, Marketlend is a facilitator of crowd-sourced debt funding. The two models work very similarly, and as a result of the similarity in models, Marketlend believes that it can input some valuable information regarding CSEF and the reduction of compliance costs.

The differentiation of equity or debt crowdfunding, or separately treating crowdfunding based on equity or debt by the regulation is not considered a good idea by Marketlend. The concept of crowdfunding, and its operation, is similar whether it is debt or equity crowd funding. If small business is to obtain a significant benefit from crowdfunding, it is debt and equity that the Government should consider at the same time.

The role of small business in the economy

We acknowledge that small businesses are a significant driver of the economy. They create jobs, facilitate innovation, competition and are able to cater directly to niches, where larger businesses with subsequently larger over-heads, cannot. In addition to this, we believe that small businesses should not be subject to higher levels of risk due to the lack of their ability to access finance. The origination of small business should be encouraged and compliance costs should be reduced to a minimum. We believe that certain issues discourage the development of small business and thereby disincentive competition and innovation; these two things being large factors in the development of an economy.

Small Businesses and Compliance cost

To begin with, a look into the high compliance costs for newly established businesses is important especially in regards to crowd funding. Later on in the submission, we will discuss the two factors that affect origination of business, but for now we will discuss the compliance costs of funding. At present, it is difficult for a newly originated business to attain funding; if they are without private investors, they typically look to a range of banking services or middle-men that search for investors, for a fee. A lot of time they are unsuccessful.

Access to Finance, with respect to small businesses

Our work in facilitating crowd-sourced debt funding (CSDF), means that we work closely with small businesses. We believe that a major issue in the origination of small businesses is access to funding regardless of debt or equity. The issue boils down to two factors: the ability to access funding and the length of time required for adequate funding.

The ability to access funding is an issue that is systematic in many small businesses in the early stages of development. Small businesses are given a choice; access funding through debt, or through equity.

Contrary to traditional use, most businesses are reluctant to offer equity in the early stages of a business, due to the difficulty in determining evaluation of the business and the perception of the valuation, based on growth expectations versus other valuation methods.
If crowdfunding is to be considered a benefit to small business, it is that small business should be given the benefit of being able to offer various forms of equity and debt. These forms would include securities as a generalised definition, including but not limited to; shares, preferential shares, warrants, convertible debt and bonds.

Financing through debt

Through debt, the majority of small business owners take a large risk. The majority of business loans require security; which for many small business owners is residential property. When security is not given through residential property, interest rates are typically much higher and the ability for the loan to be approved is much lower. However, many business owners, especially those that are young and new to the labour market, do not own residential property. This makes it increasingly hard to gain access to debt, and thereby may prematurely extinguish what could have been a perfectly viable and profitable small business.

Innovative ideas that establish a new business are not so easily accepted by traditional lending institutions so it is unlikely such businesses are able to obtain sufficient funds to operate or proceed to a stage when they are more suitable to a banking funding solution. That is a start-up is unlikely to be financed through present funding sources provided by traditional means and needs crowdfunding in either debt or equity to assist its establishment and growth.

Access to funding through equity

For a lot of small businesses, there is a tendency towards financing through equity funding; typically through friends, family or colleagues. This introduces an extra level of risk, social risk, where many small-business owners have an added level of stress or risk of letting people close to them down. Marketlend believes that this is a large deterrent to the creation of small businesses. Through crowd-sourced funding, this issue is mitigated. In crowd-sourced funding, a level of anonymity is developed; this plays a large role in mitigating the issue of social risk.

Marketlend believes that there should be more feasible ways of raising capital. CSEF is a great option to look into for many businesses. However, of course, CSEF is currently limited by the current laws that surround investment into proprietary companies.

Micro-investment & Transparency

Many believe that micro-investment hinders transparency and accountability; we believe this is incorrect. The current platform for crowd-sourced debt raising (CSDR) is based on a marketplace model. Companies that are not transparent and do not allow investors to gain adequate information before investment, simply do not have their loans funded. These companies must go through the conventional platforms for accessing finance. However, the companies that are transparent and do reveal as much information as possible, are typically the companies that have their debts funded quickly and efficiently. They are rewarded with ease of access to finance and much faster processing times, relative to banks.

Relating this to CSEF is not too difficult. If anything, CSEF promotes transparency even more so than CSDR, as investors accept more risk and play a role in the company after purchasing equity. By using the marketplace model, once again, in the CSEF setting, it allows the companies that are transparent to access finance and those that aren’t, to be denied access to finance through CSEF.

Current legal framework surrounding micro-investment and equity

Current laws, specifically the Corporations Act Sect 113, that limit the number of non-employee share-holders in a proprietary company; are a contentious topic. On one hand, there is the ability for many investors to quickly invest small amounts into a business. Each investor does not bear as much risk and the equity is funded at much faster rates. However, the downside being that a large amount of investors slows the rate at which resolutions can be passed and incentivizes a hold-out dilemma if a company wishes to buy shares back.

Increasing the cap

This however, all relates to what the cap would actually be increased to. The determination of the size of the cap will be dependent on how it is manageable by the intermediate or the company itself and provided that it is sufficiently meeting the required regulatory compliance requirements.

Transparency as a proprietary company with >50 non-employee shareholders

As a solution to the questions regarding transparency, we believe that a proprietary company that surpasses the 50 non-employee shareholder cap should be held under increased reporting obligations. This also provides a solution to those public companies with non-employee shareholders under the newly formed cap that want to return to proprietary status.

The means of communication has significantly developed over recent times and at a significantly reduced cost. Accordin it is possible to enable small-business to communicate the risks and also the benefits to its investors through electronic means.

The present legislation doesn’t fully consider the concept of being able to provide disclosure through electronic means. Not only should it be the case that disclosure should be accepted if it is provided electronically, there should also be an allowance that the verification of investors and the participation of investors below the definition of a sophisticated investor needs to be amended.

Definition of Sophisticated Investor

If permitted to access CSEF, proprietary companies are still required to ensure that the only participants are sophisticated investors unless a prospectus approved by ASIC is provided to the investor, and the offering exemption applies to the proprietary company. As a result there will be no reduction in the compliance costs and few intermediaries willing to assist.

A possible solution would be that a retail investor, being an investor not defined as a sophisticated investor, could be issued a product disclosure document by the proprietary company that is only reviewed on a retrospective basis by ASIC if it seeks to do so. Such a solution would enable proprietary companies to be able to raise money quickly and reduce legal costs in completing such process. Furthermore it would protect investors, because if ASIC found the product disclosure document unsatisfactory it could require investors are made good any loss, if there was any, and also perform an amendment to the document in cases where no loss occurred.

Management accountable to shareholders

It is recognised that whilst it may be attractive for proprietary companies to take advantage of the CSEF, there remains a need for accountability by management to the shareholders.

The environment of crowdfunding is typically electronically advanced and with the recent solutions in the field of cloud based access, a proprietary company could offer shareholders the ability to have access to accounts, and other reporting measures through a cloud technology solution. A proprietary company does have the ability at present to restrict the type of access and provide sufficient information to the shareholders so that they can be completely aware of the progress of the company, but have the same time protect the proprietary company from misuse of such information.

Amend the law to increase the investor base

The law should be amended to increase the 20 investor limit and/or the $2 million limit. A proprietary company does need a lot more than 20 investors or $2 million to enable itself to grow at a sufficient pace within the prison that is the Australian environment. By increasing the limit either by the number of investors or the dollar amount, a proprietary company will gain an ability to open itself to greater participation within the investor market.
Investors do bear the risk that the company may misuse its ability to grow the investor base in an unmanageable manner, however sufficient disclosure as well as suitable compliance management being set in place at the time, as well as suitable intermediaries to assist the management should be able to mitigate such risk. At this time, the law restricts the number of investors and the dollar amount and also restricts the economics for intermediaries to participate in compliance or management of such an investor base.

Increases in shareholder limits should not be temporary

If the increase in shareholder limits was to occur temporarily, and later be cancelled for businesses that took advantage of it, the risk would be that when it is cancelled or removed, investors are at risk of being placed in a difficult position with the company needing to determine how they can either remove investors, or reduce their size to enable themselves to meet the requirements of the law.

If the thought is that temporarily means that it would be brought into play and stay that way for the companies that took advantage of it to see how it progresses, it would reveal the difficulty that crowdfunding is not a short-term concept and the businesses that provide crowdfunding services will have the difficulty of determining how to plan for the future to assist small business.

Ongoing transparency

The establishment of a small business and funding the ongoing costs to operate the small business through the first years, can be difficult. If Australia is to participate in the innovative environment within funding, it needs to embrace the changes that are occurring in the US, the UK and otherwise. The Government can require those who want to access crowdfunding to use electronic means to provide better disclosure and transparency.

Marketlend listed as one of the SMART 100

Market lend has been listed as one of the SMART 100 for 2015 by Australian Anthill in Innovation awards 2015 – click here to read the article on the Anthill Online website

Marketlend was interviewed recently by Canstar to discuss its business and what makes it different in peer to peer lending in Australia industry

Peer to Peer (P2P) lending, sometimes called Marketplace Lending, has been around in Australia for several years, but has only just started to take off. Marketlend, a wholly owned subsidiary of Tyndall Capital Pty Ltd, is one of the newer players to market and we caught up with CEO Leo Tyndall for a quick Q&A. See the article at here .

Q: Why can P2P, or Market Lending, provide a better solution to the borrower?

A: Simply put it gives the borrower direct access to investors. In response to your question:

1. It diversifies the lender base for the borrower enabling them to be able to reduce their reliance on the risk appetite of a lender;
2. It offers the borrowers the ability to build their own investor base for future bond or equity offerings;
3. It gives borrowers flexibility in the terms of their loan;
4. It provides the ability to the borrower to offer security that is not centralized around property real estate;
5. In the case of Marketlend there is flexibility to the borrower in the type of product it can obtain, either line of credit, debt finance or inventory finance;
6. It removes a lot of the additional transaction costs by enabling the borrower to bypass the middlemen and go to the capital markets investors to get money and
7. It enables the borrower to get lenders to understand its businesss.

Q: Why can it provide a better solution for lenders?

A: For lenders, it offers:

1. High returns;
2. Direct access to the borrower;
3. A structured environment that gives them analysis of credit, loan management and collection facilities;
4. First loss protection in the form of insurance or cash collateral support;
5. Real time reporting and
6. Transparency.

Q: Does it provide access to people who otherwise could not get a loan?

A: Marketlend will not lend to borrowers who are unable to get credit elsewhere. Marketlend and the investor can see how many queries a borrower has made, and it is not a lender of last resort. As Marketlend invests with you, it will not offer a listing on the marketplace that it is uncomfortable with the risk profile for. Furthermore it will not list or invest in startups or borrowers with defaults.

A: Can borrowers expect better priced loans than through traditional lenders?

Q: When a comparison is made for business loans not secured against property real estate, trade credit or debtor invoicing, it is definitely cheaper, varying between 4-8% in some cases.

Q: How do you manage the investment risk for lenders?

A: Other than the fact that investing in a term deposit has the backing of a rated bank, with insurance and cash collateralization, we would argue that the only increase in risk is the infancy of the industry and lower performance history, to date we have had all loans paid on time and no defaults.

Q: What is the approval process for a loan? How long does it take?  Is it faster than traditional lenders?

A: Approval process is as follows:

1. Borrower enters his details through a website application form on marketlend.com.au;
2. After a 10 page completion, he either electronically signs his application or prints his application and returns the signed application back to Marketlend;
3. Our credit officers are notified of the completed application, they will assess its merits, and determine whether to forward it  assessment through the grading model or reject;
4. Prior to grading, the application, the financials will be assessed by chartered accounts, and a report provided to assist in the grading model;
5. The application is then put through a grading model, which is an automated model that takes approximately 65 factors into account to give a result as to the likelihood of the repayment of principal and all interest to the lender;
6. After the result, the borrower is contacted to advise his grade, expected rate of interest and a commentary is prepared based an interview with the borrower about his business
7. A listing is then put on the marketplace, where investors can bid on the loan
8. This process usually takes around 12 hours, and as it is small business lending, I am told by brokers that this is quite quick and faster than the banks.

A: What risk profile of investor, in your opinion, is suited to P2P lending?

Q: Investors suited to the platform are investors seeking strong returns, with transparency. The investor must understand that this is not a bank, and that the industry is still young. We find we get investors from all areas, and it is the fact that they are disclosed all the facts that they can make their own assessment and chose different risk.

Cynicism, Resentment, and Misinformation: A look at the current criticisms of P2P lending.

As someone involved with a P2P lender and generally interested in new forms of investment through utilisation of new technologies, I’ve noticed the huge amounts of hype and excitement that have been following P2P lending. However, more recently, I’ve also noticed the blatant misinformation and cynicism that have been increasingly circulated through media and journalism.
Firstly, I’d like to state that I’m quite obviously not impartial. I’m quite strictly “for” P2P lending, I think that it’s a lucrative and quite simple technique to diversify. No, I am not against conventional investment at all. The purpose of this article is not to refute the purchase of shares, property or any other sort of conventional investment, it is to refute the people who are quick to shun and discourage P2P lending.
To begin with, I’d like to highlight the value of credibility. The banking sector as a whole has extremely high barriers to entry. Omitting the cost of branches, hiring of labor, and the cost of a proficient and skilled work-force; the cost of obtaining credibility is very expensive. It takes years of experience and existence to develop this credibility, and typically years of little success and profit. However, once credibility is developed, it is an extremely lucrative tool. Once the perception of credibility is developed, banks are able to increase their margins in almost every facet of revenue generation; without much or any significant objection from their customers and clientele.
Often, when I discuss P2P lending with someone who has not quite researched the topic, they are quick to tell me that it sounds like a scam. I agree, sometimes it sounds too good to be true. High rates of return, relatively low fees from the facilitator of the lending, and the ability to gain complete information about the borrower; this sounds like a scam, right? This leads back to my point of credibility. P2P lending is something that is relatively new, although P2P facilitators are growing in number and reputation, they must still make a trade-off to incentivize new customers to switch over. To borrowers, they offer loans that can be quickly funded with much less paper-work. On top of this, they typically offer more affordable interest rate repayments.
To lenders, they offer high interest rates, attempt to inform the lender as much as possible about the risks that the loan possesses, and ease of lending. On a platform like MarketLend, lenders are able to invest as little or as much as they want. They can diversify their own portfolio, by investing in high-risk ventures and lower-risk ventures.

The other term thrown around a lot is, “P2P Lending wouldn’t last a recession”. This term thrown around a lot by armchair economists and “financial gurus”. To begin with, the idea is unsubstantiated. Why would it not last a recession? Sure, riskier classed loans would probably not net a positive return on investment, but what aspect makes P2P lending so much more likely to fold in comparison to conventional banking? Mind you, there have been several banks that have folded in America in the trough of the GFC, it is not like banks are immune to recession. Secondly, empirically, using data from NSR on the LendingClub, a prominent P2P lender in the U.S between 2007-2009, the R.O.I. had significantly decreased, but relative to the stock market and property market, it had been relatively unscathed.

Finally, the resentment and cynicism held by many people stems from fear. Not a fear that P2P lending will crash down the door and kidnap their first-borns, but a fear that their financial knowledge may become increasingly irrelevant in the future. This isn’t true. There is nothing to be afraid about. P2P lending is a new and innovative way of utilising technology and generating benefits for both lenders and borrowers.

So, if you’ve yet to invest into P2P lending, give it a shot. It costs almost nothing to begin with, and is a great way to diversify your portfolio. As P2P lending grows in awareness and reputation, the cynicism and resentment will fade away. Maybe it won’t, but that just means a little less money in their pockets.