The list does not represent the complete set of information on which investors should base their investment decision. Prior to making any investment in P2P loans investors should ensure they fully understand all the risks of making investments in P2P loans including, but not limited to, the risk that part of all capital invested may be lost. Investors should also consult with their financial, tax and legal advisors. Investing in P2P loans should represent only a portion of an investor’s overall portfolio and does not represent a complete investment program. This list is for informational purposes only and does not constitute an offer of investment advisory services or a solicitation of investment. This list was published 22 May 2014.
P2P loans are loans that are intermediated between investors and borrowers. The intermediary is called a P2P lender.
Borrowers are either individuals or small and medium sized businesses.
In many cases, for example in the case of general purpose consumer and business loans, borrowers provide no collateral. Business owners often are required to provide a personal guarantee so that if the business fails the owner is still responsible to make loan payments. Unsecured loans typically pay relatively high rates of interest in order to attract investors. The P2P sector is growing quickly and some lenders offer borrowers the opportunity to provide collateral such as real estate, automobiles and manufacturing equipment. Collateralised loans pay lower rates of interest.
Statistics from the largest and most reputable P2P lenders show the vast majority of borrowers have repaid their loans in full and on time. This is because P2P lenders, like banks and finance companies, have certain criteria borrowers must meet in order to obtain loans.
P2P loans are usually not guaranteed. Some P2P lenders establish reserve capital to compensate investors in case loans default. However, there is no assurance that even this additional safeguard will be enough to prevent investors from losing part or all of their capital invested.
P2P lenders have many procedures. First, they do background checks on the borrowers. Second, they set lending criteria. They often require that borrowers have a demonstrated history of repaying their loans. They also can require the borrowers have monthly income to make the required payments. Many lenders require verification of borrower data and proof of income. Many lenders also give each borrower a credit score that indicates how credit worthy the borrower is. Some lenders require borrowers to maintain payment protection insurance that that makes the monthly payments in case the borrower becomes unemployed, gets sick or loses his job.
Borrowers usually pay rates of interest ranging from 6% to 30%. The interest rate depends upon several factors. Borrowers with high credit scores usually borrow at lower rates of interest than borrowers who have low credit scores.
Investors usually earn between 4% and 20%.
Investors who select only the highest quality, potentially safest loans usually earn lower rates of interest. Investors who select riskier loans can earn higher rates of interest. Also, investors who select loans with longer terms to maturity usually get higher rates than investors who select loans with shorter terms to maturity.
In the case of personal loans the largest and most reputable P2P lending sites ensure the identities of the investors and the borrowers are kept strictly confidential. Lenders focusing on business loans tend to encourage the borrowers to reveal their identity so that investors can know more about the businesses they are investing in.
P2P lenders do all the work of servicing the loan. Borrowers pay the P2P lender the same as they would pay a bank or finance company. Investors can choose either to receive payments of principal and interest or to reinvest in new loans.
The material presented via this website is for informational purposes only. Nothing in this website constitutes a solicitation for the purchase or sale of any financial product or service. Material presented on this website does not constitute a public offering of securities or investment management services in any jurisdiction. Symfonie Capital, LLC is registered with the United States Securities and Exchange Commission as an Investment Advisor pursuant to the Investment Advisors Act of 1940. Our ADV filing is publicly available. © 2014 Symfonie Capital, LLC.
Investing in Peer to Peer loans and startup and early stage companies involves risks, including loss of capital, illiquidity, lack of dividends and dilution, and it should be done only as part of a diversified portfolio. The Investments presented in this website are suitable only for investors who are sufficiently sophisticated to understand these risks and make their own investment decisions. For further information see our discussion of investment risks.