P2P P2P Lending 2

Published on May 19th, 2014 | by admin

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Managing Risk A Priority For P2P Industry

P2P lending platforms not only have a responsibility to ensure the reliability of their borrowers to protect the investments of lenders, but also a responsibility to the industry as a whole. Something that many companies fear is that a rogue operator could collapse, causing their investors to lose a great deal of money, which could do huge damage to the reputation of P2P.

Because of this, most UK platforms have welcomed the fact that from the start of April this year, the FCA began overseeing the activities and regulation of P2P. While major names in the industry such as Funding Circle, Thin Cats and Assetz Capital have very low official default levels, below 2% in most cases, compared to the big banks they have very little in the way of resources to chase down defaulting borrowers.

Each platform takes an individual approach to ascertaining the creditworthiness of the companies it lends to, with some opting for a computer-based technique, and others relying on human judgement. It’s not uncommon for a borrower to need a sponsor, or to offer up some form of collateral against their loan, such as a house, as is the case of several Assetz Capital borrowers.

The typical length of the process between a company applying for a loan and receiving investment can be anywhere between 1 week to 6 months, normally averaging around 8 weeks, so there is clearly a lot of checking going on in the background by platforms to ensure that repayments will be met.

For lenders there are several steps they can take to have confidence they won’t lose any money: maintain a diversified lending portfolio, and look at it as a long-term investment, and always, always check thoroughly that the platform you’re lending through is on a solid financial foundation and is clear on its procedures for repayment should it suffer collapse.

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