Peer to Business Lending
Alternative Finance Sector Report - November 2014
12
PEER TO BUSINESS LENDING
ALTERNATIVE FINANCE SECTOR REPORT
PUBLISHED
November 14
AUTHOR
Luke Jackson
Samantha Goins
With a platform that deducts an annual fee from the gross income, typically 1%, the investor is left with 5.5% gross income. A
further minimum of 1.1% is deducted as tax (20% of 5.5%), leaving a 4.4% net annual return. As capital losses from defaulted
loans are deducted from post-tax income, with a typical bad debt rate of 1.5% across all P2P lenders, the 4.4% net return is
reduced to 2.9% - or just 1.8% net for a higher rate taxpayer.
With a P2P lending platform that does not charge fees to lenders and uses tangible assets as security, then net returns may be
significantly higher. With no lenders fees only 1.3% would be deducted as tax for a 20% taxpayer, giving a net return of 5.2%
(3.9% for a 40% taxpayer). With tangible security against the loan, bad debts can be reduced to as low as 0.5% on average.
Therefore the net return for a 20% taxpayer is 4.7%, over 50% more than unsecured P2P lenders.
1.1
1
2.9
1.5
20%
TAX RATE
Tax
Tax
Fee
Fee
Net
Return
Net
Return
Bad
Debts
Bad
Debts
40%
TAX RATE
2.2
1
1.8
1.5
1.3
4.7
0.5
20%
TAX RATE
Tax
Tax
Net
Return
Net
Return
Bad
Debts
Bad
Debts
40%
TAX RATE
2.6
3.4
1.5
Returns From Asset Backed SME Lending Platform (6.5% Gross Return)
SOURCE:
Assetz Capital
Returns From Typical SME Lending Platform (6.5% Gross Return)
