In simple terms there are two approaches to PtPL platforms. The first is to offer minimum risk and simplicity of operation and scale it up to satisfy both institutional investors as well as a mass market. Typical examples of these platforms, in the UK, are Zopa and Ratesetter.
These platforms typically lend to domestic borrowers with no asset security. This means if a default occurs then a full recovery is unlikely and, at best it may take a long time to get the money invested back. For this reason, Zopa and Ratesetter have contingency funds to protect the lender from losses, resulting in typical interest rates to the lender of between 4.5% and 6.5% over 3 to 5 years.
Asset backed loans represent a much better option for the more adventurous Peer to Peer Lender. Money is lent against a tangible asset with a verifiable value. There are a number of specialist platforms for Asset-based loans. Saving Stream is one of the simplest and offers 12% on every loan, with 1% being paid every month.
Saving Stream bridging loans were originally against boats but they have more recently shifted to land and property with many loans being for well over a £1M. These typically have a term of about a year.
One of the key parameters with an asset-based loan is the Loan to Value (LTV). For example, if a picture valued at £1M is used to secure a loan of £500,000 then the LTV is 50%. Assuming the valuation is accurate then this leaves plenty of cash available, should the loan default, to arrange for the sale of the item and return all the cash owing to the lenders.
It’s surprising what a range of assets you can lend against. Ablrate began with loans against aircraft but have shifted towards industrial machinery such as bottling plants and shipping containers. Their shipping container loans are currently paying 14%. The loan funds the purchase of a number of containers and the loan is paid off once the containers are sold. These typically run for 6 months at a time with an option to renew.
Two other players, Money Thing and Funding Secure originated from the pawn-broking industry. Money Thing also offers a fixed rate of 12% across all loans. My loans with Money Thing currently include several cars, managed portfolios of jewellery and electronics, several artworks (paintings) and finally a piece of land. Money Thing are currently expanding into both land and property and also into the supercar market.
Funding Secure also offer a mix of land, property and other assets. Their loans are usually 12% or 13% with a renewable term of 6 months. Other assets I’ve lent against with them include historical book collections, railway memorabilia, micro-sculptures and a replica of an 18th century schooner!
I have to say asset-based lending is far more interesting and rewarding and wins hands down against the more mundane Zopa model of lending money to a householders to buy second-hand car or for a bit of home improvement.