Peer to peer (P2P) lending is one of the fastest growing areas of alternative finance. Latest industry reports show that it now represents 12% of the total business lending market in 2015 (Source: Nesta Report Alternative Report Feb 2016). This lending is being financed by individual and institutional investors, creating a dynamic and fast growing marketplace that offers borrowers new and innovative ways to finance their businesses.
Every month, more and more investors are signing up to platforms like LendingCrowd as a way of accessing investment opportunities. So, what are investors getting out of P2P?
Investing for Growth
P2P loans can offer higher rates of interest than other types of investment, although returns are not guaranteed.
Low interest rates over the last few years have seen rates of return from cash investments at historically low levels, and once inflation has been taken into account, are actually delivering a negative return in some cases. As a result, investors are looking elsewhere for positive returns and P2P lending is one such alternative.
At LendingCrowd, the rate of return from our P2P loans will vary. Since our 2014 launch returns have averaged at 9.22%*. Remember your capital is at risk when you invest.
It’s easy to invest
Registering with a P2P platform like LendingCrowd is quick and simple. It only takes a few minutes to set up an investor account, transfer in funds and begin lending to SMEs on our platform. The minimum investment in the LendingCrowd Self Select Account is just £20. There is no maximum investment, giving investors greater flexibility over how much they want to lend to SMEs.
Investment opportunities are listed on the Loan Market, where you can bid on new loans or buy parts of existing loans from other investors. New loans are listed for auction, and investors bid for the interest rate and amount they’d like to lend. Loan parts in existing loans can be bought instantly, without waiting for an auction process to finish, but the rate is already set.
By investing in P2P loans, investors can gain access to a regular income as borrowers make regular repayments of capital and interest on the money loaned to them.
Some investors choose to withdraw interest from their account as it is paid. With LendingCrowd, investors will have the same amount repaid to them each month from each investment (provided there are no issues with the loan).
Ensuring a portfolio is diversified is key to spreading risk and P2P lending offers another asset class for investors looking to invest funds in alternative areas alongside more traditional options such as stocks & shares. Like all investments, investing in SMEs through a P2P platform carries risk. With LendingCrowd, the rate of the return for loans on the platform remains the same throughout the term. Therefore changes in the wider financial market (such as a rise in the base interest rate) may have less of an effect on the returns available through P2P lending.
Borrower companies from every sector approach P2P platforms for help with funding, allowing investors to lend to a wide range of businesses. LendingCrowd has helped borrowers from a number of different sectors, including Agriculture, Retail and IT & Telecoms, so investors can diversify their lending across a range of businesses in various sectors and help reduce their investment risk.
At LendingCrowd our expert Credit Team assigns each loan with a credit band rating, giving investors an idea of the risks specific to that business. By investing in loans with different credit band ratings lenders can further diversify their holdings and help reduce the total risk of their portfolio.
It is very important to know exactly what you are investing in, regardless of the asset class you choose. On P2P platforms, every loan page will have information about the background of the business, the purpose of the loan and how the capital raised will help the business grow and fulfil its ambitions. This can also include financial information such as filed accounts and management information, which can help give a clearer picture of the borrower and enable the investor to make a more informed investment decision.
LendingCrowd displays this information clearly and also offers the opportunity for lenders to put questions to the business owners, so investors can gain a good understanding of the investment proposition.
Being part of something
The idea of supporting small businesses has also proved popular with lenders, particularly when the borrower is local to them and so the area’s economy may also benefit. The information provided by LendingCrowd allows investors to understand exactly who they are lending to and can create a more ‘personal’ connection between borrowers and lenders.
Investing with LendingCrowd is a simple and easy process to start. We have ensured there is flexibility throughout for lenders and that portfolios can be easily managed with the LendingCrowd platform and iOS app. If you are interested in learning more and seeing what kinds of P2P loans are on the LendingCrowd platform, why not sign up and visit our Loan Market?
*Your Loan Return Rate May Differ. Capital At Risk