Peer to peer lending
My business has always been cash positive and this has created a small but not insignificant treasury fund. Our banks have offered somewhere between 0.1% and 0.5% interest which is pretty insulting if you ask me. So since 2013 I've been using a number of P2P lending companies to get a higher return. I also use a number of these for my own personal savings. Investments we've had have been spread across mortgages, bridging loans, debt factoring, commercial loans, pawned boats and all sorts.
In the golden hey days I was making upwards of 8-10% interest, but competition for loans has increased and loans are getting much more competitive; returns are now much lower (3-5% in the majority of cases) and given the risks you have to be a lot more choosy about where your money goes. The legal structures around these loans are varied and often questionable too, so you need to be much more careful where you put your money - all that glistens is not gold!
Here's a brief overview of who I've used and how they work.
Funding Circle
They offer a selection of unsecured and secured business loans and more recently secured property loans. You own a proportion of specific loans and so there was some skill required in choosing the better loans as the categorisation and security on the business loans was a bit hit and miss. The collection costs and guarantees offered often mean bad debt recoveries as low as 5p in the £1 (5% of the original loan amount is repaid). That's pretty poor, but the bad debts were quite minimal if you choose your loans well. This was time consuming, so I'd often use their automated tools to bid for anything with a good return, then sell the crap later on the secondary market (sometimes marking them up for a small profit).
As returns got lower and lower, and their risk grading got more and more questionable (there was a slight creep in lowering standards over time) I switched entirely to only buying property back loans, mostly bridging loans. These were still attracting 8-10% returns and due to the security rarely, if ever, defaulted (debt overhang was still a risk here I believe - a second mortgage on a property is no where near as protected as the first mortgage even if both loans together have a good LTV).
More recently Funding Circle have changed their methods again so you cannot choose your loans, but now choose between high and low risk and get them allocated to you automatically. Less work, but what with the reducing returns and questionable ratings, this was no longer worthwhile as I couldn't easily cherry pick the good stuff. Other than a few loans still in recovery, I've now pulled out of Funding Circle completely.
Wellesley
I used Wellesley when they offered proper P2P property loans packaged up as fixed term loans underwritten by the loans that made them up. (Now they just offer investment bonds in Wellesley PLC itself, where you're lending money directly to Wellsley and they can effectively use this for whatever they want - marketing, Christmas parties etc. So in my view you may as well find some corporate bonds to buy in a company that's a bit more secure - Wellsley's accounts are too hot right now).
Back then, Wellsley offered loans secured on property with a first charge (primary mortgage) LTV <75%. (Which means that the Loan would never be more than 75% of the Value of the property - basically the property market would need to drop by 25% before your loan isn't recoverable). Your investment was spread over their entire loan book and this offered pretty well protected loans. They offered a fixed return (we had 6.76%pa for 5 years) with a provision fund to cover any bad loans.
That said we recently had one significant loan default - it seemed like the developer had overrun on budget, spent all of the loan and the property was unfinished enough that it wasn't worth enough to cover the debt. That sounds like gross miss-management to me, and I questioned why funds were released so early (it's normal for funds for new builds to be released in tranches once a surveyor from the lender is happy with the work completed so far). Wellsley refused to use the provision fund in this instance and also refused to comment - I personally think they screwed up on this one.
Otherwise the return has still been >4% and very low maintenance. I log in a couple of times per year to get a statement, that's it; but I will be pulling all of the loans out when they complete. I've lost trust in the company and no longer want cash tied up for years at time.
Lendy (formerly Saving Stream)
This is now a property lending platform, but when I first used it they pawned pretty much any asset of value for owners. It was still heavily property based, but being based on the Isle of Wight, there were also a lot of loans against boats and the odd exotic car. I didn't use the platform for long, as there weren't enough loans available to build a diversified portfolio and it was taking too long to build up an investment.
Now they are exclusively property backed loans, though there are several bad reviews relating to poor due diligence, overvaluation of assets etc and at the time of writing there are a large number of loans in default, some more than 2 years late. The ability to sell loans and remove your cash can also be very hard/slow leaving you stuck with loans you can't get out of. Avoid!
RateSetter
This is much easier to understand for anyone who's not familiar with commercial debt instruments or LTV ratios. You give them the money, they give you a % return on your money and all of the diversification and bad debt is dealt with by them - it's just like a bank account, albeit not guaranteed under FSCS (Financial Services Compensation Scheme which applied to bank accounts).
Returns are lower (3-5%) but more predictable. The platform is based on a very wide selection of personal, property, business and asset backed loans, but it's all pooled into one big slush fund which they manage. While the returns aren't exciting, you can access you cash quickly if you need to and it's probably less volatile than the others. I use this for short term cash deposits.
Assetz Capital
A bit like RateSetter you can just use their instant access or 30-day access accounts (4-5% returns, slightly better than RateSetter) or you can manually buy and sell loans. I've not bothered with the latter as liquidity is more important right now and so I use this for short term deposits again. It appears to be a well presented platform, albeit not quite as easy to use as RateSetter and with good backing.
BondMason
Each of the Peer-2-Peer lenders above are meant to have a due diligence team that price and accept loans. BondMason take your investment, and invest it in the other platforms on your behalf. By using their experience and cherry picking the best loans out there, they advertise gross returns of up to 8%. Everything is done for you, and loans are roughly evenly split across invoice discounting, business and property loans.
That slightly brings in to question why loans which can be predicted to perform poorly are making it on to the other platforms in the first place, but the fast growth of the market and general eagerness to grow means that acceptance criteria are probably more fluid than they might be. Of course BondMason take a fee (1.5% of your investment) so the stakes are up against them to outperform other platforms.
So how does BondMason perform? Well I've had a return to date of 8.61% with no bad debts during the first year and a couple starting just now (but at less than 1% of the investment). I'd expect a net return after fees of around 6%. Cash withdrawal is often less than 7 days, so this is currently my favourite option - though I always make sure to spread investments over multiple platforms.
