Don't invest unless you're prepared to lose money. This is a high-risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong. Take 2 minutes to learn more.

The Assetz Capital platform is no longer open to investment from individual investors. No new investments into peer-to-peer loans are possible and, as a result, no new funds should be deposited. The existing loan book relating to the Retail platform is now in run-off and this will, over time, deliver the return of capital to investors. Full information can be found here . Existing Retail lenders can still log in, view information regarding their account and loan holdings and operate their account in accordance with the information regarding the run-off provided on the link above. Please see this important message regarding the currency of the information on the pages on this website.

Investing in Peer-to-Peer Lending: What do I Need to Know?

Investing in Peer-to-Peer Lending: What do I Need to Know?

With such growth in popularity, there are many new investors keen to begin earning better returns on their cash than they have been used to over recent years, but sometimes potential lenders hesitate so here are some initial pointers for those looking to explore peer-to-peer lending with confidence:

Understanding the Market

For many, attractive peer-to-peer rates of return aren’t the only appeal of this industry. The transparency offered and the chance to give something back to the UK economy also feature heavily in an investor’s decision to move away from the banks.

Investors can be a part of directly building the UK economy by supporting small businesses they believe in, which is why understanding the basic principles that allows this to happen is important.

Peer-to-peer platforms are the facilitators for individuals to lend money directly to other individuals or businesses.

Businesses benefit from platforms being efficient and having the ability to turn around loan agreements quicker than the banks, and investors benefit from higher returns coupled with the satisfaction of helping SMEs across the UK.

Choose a Platform

All lending platforms are different, so it’s worth doing your homework to see which one best suits you:

  • Check online independent forums to get an idea of which platforms are highly regarded and why
  • Talk to the platforms and see what each can offer you
  • Look at how long each platform has traded and how much it has actually lent
  • Look in the media for what’s being said

To avoid getting lost amongst the number of platforms out there, have a look at who is behind the business and get to know how experienced they are as founders. In particular is the platform an experienced lending team or just a technology team?

As highlighted, forums will identify the experiences of other lenders – a sure-fire way of getting under the skin of many businesses.

Spread the Risk

Once you have chosen a platform, it’s time to start investing.

Firstly, make sure you’re aware of the risks of peer-to-peer lending. Although it’s rare, loans can default and there is a chance that you may not receive your initial investment back.

To minimise the risk, we suggest that you diversify and spread your money over several different loans. For example, if you have £2000 invested, you would ideally want this across multiple businesses. By doing so, it minimises the impact if one was to turn in to a loss. It’s also sensible to diversify over several platforms and get direct experience before tightening up your choices based on experience.

Control Defaults and Losses

Some platforms have security in place to ensure the highest possible chance of investors getting their money back in the event of a default. For best risk reduction this should be in the form of tangible asset security such as first-charge mortgage taken over a property owned by the borrower. This is how Assetz Capital works. Not all platforms work this way and some do unsecured lending or take lighter security. If their credit models are good then there is nothing necessarily wrong with this but make sure you are well diversified to get close to their average default and loss rates or make sure they have a very large provision fund to protect you.

Assets refers to a number of different physical or sometimes intangible items, from machinery, vehicles and buildings to the list of debtors (people who owe a company money) and the business’s stock. Some platforms, such as Assetz Capital’s Green Energy Income Account, provide a provision fund to add extra security for lenders by providing a degree of cover for the first losses incurred by any loans.

Making your first investment

As with anything new, it’s best to just try a little before moving on to greater quantities. With Assetz Capital you can invest as little as a few pounds to get to understand how it all works - and unlike with some other platforms, lenders aren’t charged a fee.

Once you’ve got used to the system, you can choose whether you’re interested in putting more in. Some people invest hundreds of pounds whilst others invest millions in Assetz Capital and to date no-one has lost any capital although lending with this level of return always carries the risk of some defaults to reduce net returns from the headline gross rates.

Every individual investor is different, requiring different considerations with changing financial goals and attitude to risk. This is inevitable so one platform may not be right, whereas another may well be. That’s fine. However, what we have begun to see is peer-to-peer lending becoming a new, true asset class, and therefore some investors have their money spread across one or two of the reputable platforms.

As with much of the investment market, there is risk associated with peer-to-peer lending. Understanding risk and where peer-to-peer lending fits within this is what newcomers need to grasp before they can embrace it. Many have already and many more will do so in the near future.

If you’re interested in becoming a lender, join Assetz Capital as an investor today. 

- April 23, 2015

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