Peer to Business Lending
Alternative Finance Sector Report - October 2014 15
PEER TO BUSINESS LENDING
ALTERNATIVE FINANCE SECTOR REPORT
PUBLISHED
November 14
AUTHOR
Luke Jackson
Samantha Goins
RISKS AND MITIGANTS
It is important to assess the different risks seen in the market and what processes each platform has in place to mitigate these risks to
investors. It is challenging to produce an overarching set of criteria for the whole market, but there are a number of risks that should
be universal across all platforms which can be assessed comparatively.
Viewing the risks in this manner can allow investors to screen different platforms in a completely neutral way and avoid being
influenced by headline returns, glossy marketing or the dominance of any one platform.
CRITERIA (RISKS)
LOW RISK (0-3)
MEDIUM RISK (4-6)
HIGH RISK (7-10)
Borrower Default on Loan
Full security held or
debenture over borrower
assets valued above loan
amount
Protection fund in place to
cover defaults provided the
fund does not run out of
capital.
No security held or
protection fund
Late Payment
Full security held or
debenture over borrower
assets valued above loan
amount
Protection fund and debt
recovery process in place
No security held or
protection fund. No debt
recovery process in place
Platform Failure
Loans and any loan security
held by independent trustee.
All monies held on client
account
Loans held by trustee/
company controlled by
platform provider
Trustee only appointed at
time of default
Rise in Interest Rates
Returns much higher than
available from cash deposits
or linked to base rate or Libor
Returns not high enough to
reward added risks
Very low returns being
received, similar to current
cash deposit returns
Early Exit Required
Platform has an established
secondary marketplace or
specialises in short-term
loans
Platform has recently
implemented a secondary
marketplace, or external
resale
Investors are locked-in and
cannot sell on their loan
on an aftermarket and the
marketplace is predominantly
medium-term to long-term
loans of 3 to 5 years or
greater
Credit Rating of Borrower
(Company)
AAA - A
A- - B-
CCC+ - D
Age of Borrower (Company)
5 years plus
2-5 years
New or not yet
established
Experience of Directors
Highly experienced
Relatively experienced in
chosen sector
New entrepreneur
or ideas
Example Risk Matrix
