Close risk warning

As with most forms of investment, peer-to-peer lending carries a degree of risk to your capital; in this case, if borrowers were unable to repay their loans. At Assetz Capital, we seek to reduce this risk to our investors by taking asset security on every loan, with the added benefit of a discretionary Provision Fund for some of our investment accounts. Investment Account target interest rates should be considered along with the relevant Investment Account expected defaults & losses information. Past performance does not guarantee future performance. We recommend that prospective lenders read the Key Investor Information pages before investing.

Understanding the Risks

Credit Awards Best Peer-to-Peer Lender 2016 defaqto 5 star - peer to peer lending 2016

The risks in lending money

As with most forms of investment, peer-to-peer lending carries a degree of risk to your capital; in this case, if borrowers were unable to repay their loans. At Assetz Capital, we seek to reduce this risk to our investors by taking asset security on every loan, with the added benefit of a discretionary Provision Fund for some of our investment accounts. Investment Account target interest rates should be considered along with the relevant Investment Account expected defaults & losses information. Past performance does not guarantee future performance. We recommend that prospective lenders read the Key Investor Information pages before investing.

6.25%

Our expected default rate

Our expected default rate

When lending, there is always a risk the borrower may default.

A default is a breach in any of the conditions of the loan, failure to make a timely payment or a significant credit event. The good news is, this happens only to a small percentage of borrowers (our expected future default rate is 5.75%).

Investors should expect to recover some or all of their capital through recoveries of the security pledged by the borrower when they took the loan.

Defaults and losses

Making your risk assessment

  • Character

    Who are you lending to? What is their history? Are they good at what they do? Are there areas of weakness? By asking detailed questions of the borrower one can establish if they are of good character. Bad character traits would be a poor credit history, no experience in the sector in which they are operating, not being qualified for the job they are doing, and so on.

  • Ability

    Can the borrower afford to repay or refinance the loan over the period they are asking to borrow for? For this one can look at bank accounts, the business financial accounts, forecasts and projections. Questions such as “who produced the information?” are also valid, as a business plan written by a reputable firm of accountants carries more credence than one that isn’t. This also includes the ability of the Owners and their capacity to run the business properly.

  • Margin / Means

    First Margin. Very simply, how much interest income do you want to make? For lower risk, such as a 60% mortgage, the margins will be small as the risk is lower due to the level of equity in the property being funded. For higher risk, the margins are higher to compensate for the greater risk of loss. Secondly Means, or the proper resources and operations to run the business that can safely create enough returns to comfortably pay the interest.

  • Purpose

    What is the loan for and does this fit with the nature of the borrower? For example, a fish and chip shop wanting to borrow money to buy a new deep fryer would be an acceptable purpose. The same shop wanting to buy a knitting machine wouldn’t.

  • Amount

    Size really does matter. The more money someone borrows, the higher the risk. The amount also has to be compared against the apparent value or wealth of the borrower. Banks are happy to lend several million pounds to large companies, as the borrowers have the assets to support the loan. The average man in the street won’t get a loan of this size because he hasn’t got the assets or the ability to repay.

  • Repayment

    How will your loan get repaid? Getting some of your capital back each month reduces your risk of loss. Full repayment over 3 years is less risky than full repayment over 25 years, as there is less time for things to go wrong and the borrower default. If the borrower does default, how do you get your money back?

  • Insurance

    Also known as security. If the borrower stops making repayments, what assets can be used to repay the loan in full? Each type of security has its own risks and these should be considered before making a loan.

 

Once you have considered all of the points above, you should then be able to make a decision on whether there is a high or low risk of losing capital if you make the loan and if the margin required to adequately compensate for this risk.

Managing risk

By making a risk assessment before you lend, and by reviewing the type of security pledged to support the loan, you can reduce the risk of losing money. However, even with security in place it is not possible to completely eliminate the risk of loss of capital.

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Asset security

There is always risk in lending money for interest returns.

The risk you face in lending money is that if the borrower cannot repay the loan, you may lose some or all of your capital. However, we take asset security on every loan, so that if a borrower does default, investors should expect to recover some or all of any loss through recoveries from the security pledged by the borrower.