Whether or not you think that the Federal Government’s much talked about and hyped up innovation initiatives are purely aspirational or the real deal, the fact is that there are a number of financial services businesses and tech innovators out there that have just gotten on with the job of delivering what the market wants.
One of the areas that over recent years has attracted attention is the peer-to-peer lending space. While we may have seen ads or internet sites that actively promote peer-to-peer loans to borrowers, what is less obvious is that many of these platforms rely on funding from investors to on-lend to their borrowers.
You’ve probably seen the myriad of loan types offered by lenders, whether they’re for construction funding, personal financing, business loans, or property acquisitions. Similarly, there are many and varied types of peer-to-peer lenders offering different types of loans and investment structures for yield focussed investors.
At a high level, these investment opportunities are designed to provide an income return profile typically higher than an ordinary at call deposit account or standard term deposit account. As with all investment opportunities, the golden rule to remember is that the higher the return, generally the greater the risk involved. In this case, some of the risks that prospective investors should considered include:
- credit quality – i.e. the credit quality of the borrower(s) that will be using the invested funds,
- liquidity – whether the investment is “at call” or a fixed term
- structure – whether the interest payment will be regular or at the end of the loan, as well as whether the return profile will be fixed or variable
- loss of capital – whether the borrower can make ongoing loan obligations and the final loan payout.
There are other risks and factors that any prospective investor should also consider, which will typically revolve around the specific investment opportunity and the peer-to-peer provider.
One of the key benefits of peer-to-peer investment opportunities is the potential to much closer match an investor’s risk appetite to the investment opportunity.
To help investors understand the peer-to-peer landscape YieldReport now includes a new dedicated P2P Loans section where you can find out more about these investment opportunities, how they work, and some of the main players in this space.