P2P Guide

P2P Lending platform examples 21 20 P2P BUSINESS MODELS P2P BUSINESS MODELS Risk Comparison to other asset classes 2.3 CASH BONDS P2P LENDING SECURED EQUITY P2P LENDING UNSECURED Liquidity Completely liquid - although some liquidity has to be sacrificed to earn higher returns Dependent on secondary market depth for that bond type. Corporate bonds may be essentially illiquid Dependent on loan term and secondary market depth If listed, liquid, highly liquid for large caps Dependent on loan term and secondary market depth Volatility Not volatile although inflation can erode its purchasing power over time Very sensitive to interest rate movements especially longer dated bonds Lower risk rated than equity Subject to market sentiment so very prone to volatility of market movements Lower risk rated than equity Security Not subject to loss other than the effects of inflation on purchasing power. Cash is protected by FSCS if deposited within an institution with a banking licence – up to £85,000 per banking group Government bonds generally very secure, corporate bonds depend on the financial condition of the bond issuer Tangible security includes real estate (1st and 2nd charge) and non-tangible security includes personal guarantors, insurance coverage and provision of contingency fund None if the business fails. The FSCS applies to financial advice and investment firms, not shares None, if the borrower fails, although insurance coverage and provision fund may be available Yield 0% unless deposited with bank. (April 2018 around 1%-2%) Can be negative to double digit returns in higher risk corporate bonds in alternative investments 4%-6% 3%-4% for UK equity income (with the possibility of capital gains) 7%-10%+ Here is a small sample of how lending platforms mix and match the different components to construct their business model. Note that these three components are by no means the only points of differentiation between platforms - they are just the major three. PLATFORM UNDERLYING LOANS INVESTMENT OPTIONS RISK MITIGATION P2P property lending Discretionary Managed Portfolio of Loans Security (Property) and Co-investment P2P business lending Direct (Balanced or Conservative options) Credit Assessment P2P consumer lending P2P business lending P2P property lending Direct Provision Fund and Security for some loans P2P consumer lending Direct (Core and Plus options) Credit Assessment Peer-to-peer lending has brought about real benefits, not only for the UK’s small and medium sized business community, but our economy at large. STEPHEN BARCLAY MP, THE ECONOMIC SECRETARY TO THE TREASURY, DECEMBER 2017 LOWER RISK HIGHER RISK