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How To: Choose Which Loans to Invest In


choose which loans to invest in title

Now that you’ve got your Investor Account set up with funds loaded, you’re all ready to invest in loans through LendingCrowd. With more than 70 loans now completed, there are lots of different investment opportunities available to you, but which businesses should you lend to? This blog looks at the information available to you on the LendingCrowd website to help you choose which loans to invest in. We would recommend that investors diversify their funds across as many different loans as possible to help spread the risk of investing.

 

Risk band

Each loan on the Loan Auction and Loan Exchange are assigned a risk band by the Credit Team during their assessment of the loan application. This band dictates the minimum interest rate for the loan: A+ loans have a minimum interest rate of 5.95%, through to C+ loans which have a minimum interest rate of 12.25%. The risk band assigned to the loan gives you an idea of the level of risk of that investment, with A+ loans being categorised as ‘low risk’ and C+ loans being ‘acceptable risk’. This rating helps give you guidance on the expected risk of investing in that loan.

We would recommend that you invest in loans across a variety of risk bands to help diversify your investment portfolio as much as possible.

 

Sector

Sector information for each loan available is also shown, to enable you to select the kinds of businesses you want to lend to. LendingCrowd’s borrowers have come from a variety of different sectors, so there are lots of options for investment. To help diversify your portfolio effectively, we recommend that you invest in loans from different sectors, to help minimise the effects of any negative sector developments on your returns.

 

Loan term

LendingCrowd offers loans with terms from 6 months to 5 years, giving you investment options with a variety of loan lengths to choose from. This means you can choose how long you would like your investments to be, although do bear in mind that you will receive monthly repayments made up of capital and interest, so you won’t have to wait until the end of the loan term to get your capital back. Investing in loans with different term lengths is another good way to spread your investment risk.

 

Financial information

Each loan listed for you to invest in has detailed financial information to help you make an informed investment decision. The information given includes the company’s current and previous credit scores provided by Creditsafe, an independent supplier of credit and business information. A financial summary for the business is also given, showing the profit & loss figures, the balance sheet, the historic ratios, and any existing outstanding loans that the business has. This information is provided to help you decide which loans you’d like to invest in.  

 

Pitch

As part of the loan application process, the borrower writes a ‘pitch’ to investors. This pitch lays out the purpose of the loan, what the borrowing company does, how long they want the loan for, why they are safe to lend to, and how the loan will help the company. This is designed to give you an overview of the company and how the loan funds will be used.

Investors also have the opportunity to ask questions to the Borrowing company if they need more detail.


Security

We take security over all the loans we offer which is reflective of the borrower’s circumstances and the loan size requested, giving them and investors peace of mind. The security we take varies for each loan, but would normally be a Bond and Floating Charge (or a Debenture in England & Wales) and may also include a Personal Guarantee from a Director of the business. We take security over each loan to help protect investor’s funds in the event of a default situation.

 

Conclusion

We hope this guide helps give you an overview of the information available to help you choose which loans to invest in. This information is provided to help you make an informed decision about your investments, although we would recommend that you seek independent financial advice before making any investment decisions. We also recommend that you diversify your investment portfolio across as many loans as possible, with a mix of risk bands and sectors. For more information, see our Risk Matters page and information on diversification.

 

If you have any questions about investing, please email investor@lendingcrowd.com or call 0131 564 1600.

 

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Article author

Heather Mackay

Heather Mackay

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If you invest through LendingCrowd you should understand that your capital is at risk.

LendingCrowd is the trading name of Edinburgh Alternative Finance Limited, Company Number SC468392, authorised and regulated by the Financial Conduct Authority (Firm reference number 670991). LendingCrowd and its products are not covered by the Financial Services Compensation Scheme.

Read more about the risk involved when investing and borrowing.

The company's registered office is 23 Manor Place, Edinburgh, EH3 7DX.

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