P2P Lending Blogpost

Peer to peer (P2P) lending, also known as crowdlending, involves applying to a platform for a loan which then offers it out to its members who collectively fund the loan. It would not be unusual for €200,000 to be funded by up to 800 bidders. Online Peer to peer finance providers like Flender and Linked Finance are increasingly popular with businesses as an alternative to traditional banks.

P2P is part of the wider Crowdfunding movement faciltated by the Internet

I joined Linked Finance in September 2019. Four years later, I was very disappointed to learn that from November I can no longer lend on the platform. Because according to the criteria I am a non-sophisicated lender. It is disappointing as I think it is a very worthwhile facility for SMEs (borrowers) to have available as an alternative to mainstream banks. It is also disappointing as it provided a very nice return on my savings – €9,000 becomes €12,000 in 5 years is my estimate.

Very attractive return for Small Lenders on investment in small loans to SMEs

I joined Linked Finance in September 2019. Over the next 2.5 years, I lodged €4,750 via my bank account, 21 loans were issued to their clients to a value of €10,940 – as the funds were repaid new loans were issued. I was delighted to earn €835 in interest. At the time I recommended peer lending platforms as a good way to grow your savings over time if you don’t need immediate access to the funds.

Linked Finance Summary March 2022

Following the strong guidance of the platform I set up autobids to bid on loans as they joined the market – €50 to €300 per loan – their advice in blogs and emails is to bid small and have a big portfolio to minimise the risk.

Most of ‘my’ loans are 24 or 36 months with the max being 60 months. The Linked Finance system says that the average interest rate is 9.19% for the 21 loans issued.

By October 2023, 4 years after joining, I have lodged €9,000 of my savings. I think that the figures below are staggering.

  • Total Lent €21,760
  • 120 loans – 14 repaid in full. All but 2 are on track to be paid back in full.
    • One is on a payment break. They owe €29 to me in that loan.
    • One is in default. It was a €300 loan. I have got my money back so just losing out on lost interest.
  • Interest Earned €1,983
    • I have paid tax on the interest each year – a statement of interest earned is provided by the system.
  • Current account value is €10,700
    • The future interest due on the loans is not included in this figure. My calculations show that it will be about another €1,300 over the next 3 years.
    • I have stopped bidding for loans. I am now going to withdraw all my money over the coming years – effectively €300 a month for the next 3 years.

These figures are after all fees levied by Linked Finance – their fees charged to me have been €265 to date which seems very reasonable.

Valuable facility for small business borrowers

The PR from Linked Finance highlights that millions have been borrowed to date. They issue from very insightful reports on lending in Ireland and the outlook for Irish SMEs.

No names will be mentioned in this post but as lenders, we get to know a certain amount about the businesses – they are all small enterprises from all across Ireland that collectively employ a lot of people. They are involved in all sectors. A condition set by Linked Finance is that they have to be in business for over a year to apply for a loan. There are always valid reasons for needing the money – businesses need money to grow!

Please note that while the loans are secured by personal guarantee there is a chance of default as with any business lending. The advice is to be involved in lots of small loans to offset any risk. During Covid, Linked Finance offered payment breaks which I fully agreed with even though it meant a slight delay for lenders to include myself in getting repaid.

Easy to set up and manage Peer Lending

There is no work involved in Linked Finance for the lender once the account is set up. All the due diligence is done by Linked Finance who grade the loans according to the applications – higher risk loans pay higher loan rates but you can avoid those if you wish. The online platform is very user friendly.

Unfortunately, I can no longer avail of this peer learning opportunity to make a return on my savings as I am considered a non-sophisicated investor.

Have to meet 2 of the criteria to be deemed a Sophisicated Investor

Hope you found this post useful. It is my own personal opinion and is not endorsed or sponsored by Linked Finance – I am simply one of their many lenders /Customer (soon to be former). Comments and social shares are welcome. This is my personal opinion and experience and does not constitute professional advice – it is always advisable to speak to a financial advisor before making an investment decision.

For more on P2P lending see this post by DCU Business School.

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