Peer-to-business Lending – It’s a Journey Not a Destination

Kylie Greeff
16th August 2018

If you’re new to peer -to-business lending you might be wondering what you’re in for, if you’re a seasoned P2B lender, you may by now understand the various processes and cycles involved in lending to businesses.

As a platform we’ve been facilitating lending to UK SMEs for over 6 years and have noticed certain trends in lender and borrower activity. We thought it might be useful to give you an insight into what you might expect as a lender.

It should be noted that the below description of the ‘Typical Lender Journey’ is a generalisation, and your individual experience may of course vary.

Firstly, to understand the Lender Journey you should first understand that that Peer-to-business lending should not be mistaken for a short-term escapade. The average loan term on our platform is 5 years, so as a lender you should largely view P2B lending as a medium to long term investment strategy.

 

Discovery

New to Peer-to-business lending, lenders start off by enthusiastically engaging with the platform and make their first few loans to businesses. Typically, within a month, lenders begin receiving their first loan repayments of capital and interest from the businesses they have supported. So far so good… Money’s gone out and money’s coming back in with interest.

Lenders generally will not see many late repayments and are likely to not experience a default during their initial 1-3 months on the platform.

As lenders receive interest repayments, they decide to either re-invest the capital and interest or choose between one of the automated repayment options.

Trepidation

From 9-18 months, a lender might experience their first default. Whilst suffering a default is part and parcel of peer-to-business lending, this event comes as a shock to many lenders. Loss does not feel good.

After suffering their first default many lenders will reassess their lending strategy and risk appetite. This is a positive step in their lending journey as it ensures that lenders are consciously managing and monitoring their investment portfolio over time.  It is at this point when lenders typically consider portfolio diversification and overexposure.

Adolescence

After about 24-36 months of participation in lending, a lenders portfolio is reaching maturity. After previously having experienced higher than average net returns, the lender’s net return starts to level out to be more in line with the platform average.

This happens as a lender may experience further defaults as well as recoveries on earlier defaults.

Maturity

We estimate that most lender portfolios start reaching maturity after 3 years. At this stage, lenders have lent to businesses, had loans repaid in full, experienced defaults and recoveries and adjusted their lending strategies a number of times over the course of their journey.

At this stage lenders weigh up their returns on the platform with returns elsewhere and consider the benefits of maintaining a P2B portfolio as part of their wider investment strategy.

We’re proud to have a strong retention rate of our lenders, many of our first lenders still lend via our platform.

Whilst we could set out our stall as a platform stating that your lender journey will all be smooth sailing, we’ve chosen to take a more realistic and (we hope) more helpful approach for you. Rebuildingsociety.com does not promise lenders a ‘fixed return account’ where lenders simply deposit and wait. We encourage active engagement from the lenders and believe actively engaging and monitoring your lending account and risk is likely to reap greater rewards.

As you begin or continue your P2B lending experience, you should consider the various investment strategies for lending to businesses and decide which strategy or approach suites your goals best.

We regularly publish content that we hope lenders find useful in helping them manage their portfolios and using the platform’s capabilities to their advantage.

You can find more useful articles like this one in our Lender Library.

If you think of a topic that you would like more information on or further guidance, please let us know and we’ll consider adding it to our library.

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