As an advisor, when considering peer-to-peer (P2P) lending as an option for your client’s money, choosing the right lending platform is one of the most important decisions you will make.
Every investment involves risk and P2P lending is no exception. Understanding the possible risks will help you mitigate some of the more avoidable risks. Here are a few tips on evaluating lending platforms to avoid exposing your client’s money to ‘unnecessary’ risk.
- Check the people behind P2P platform - The very first thing you should do is check the About Us section and see the profiles. You want to see an awful lot relevant banking experience at credit assessment and ideally you'll want to see credit- or risk-modeling specialists as well.
- The background and experience of the lending team - Check the credit and investment experience which the platform’s investment team has. A team with a strong financial background will be better placed to make sensible and informed decisions when originating and managing loans. They should also be able to better identify loans to avoid.
- Check the transparency of the platform and its overall track record - The P2P lending website should be transparent about its statistics, particularly about bad debts, showing a past history that you can make a judgment on it. Although past performance is not a predictor of future results, it is one element in considering where to invest.
- Assessing a platform’s ‘typical’ borrower- You should know who your client is lending money to – are they primarily individual consumers or business people and if the platform has a good balance of ‘borrower types’?
- Default and recovery process- Check if the platform is clear about what happens when a loan goes bad and if a recovery process in place. You need to know that the pot money kept aside by website will not always cover all losses. Sometimes they will be depleted and this will lower your returns.
- Check the customer reviews - Many platforms have an independent customer review partner in place. Read both the reviews from customers and any responses submitted by the platforms.
- Speaking to the platform directly - In case of any question or query, you can even call up the people behind the platform and get your answers from the horse’s mouth.