Failed peer-to-peer platform Lendy is an example of why investors in the P2P sector need to be wary of chasing higher yields without fully understanding the risk involved. You may have read that investors were attracted to the offer of a fixed 12% return. But to be viable you wonder how much they needed to charge their borrowers and what kind of loans were they making. Regardless of any risk control, common sense says this was risky. It has now emerged that over half of Lendy’s borrowers were behind with their repayments or unable to repay their loans, leading to insolvency of the business.
It may be helpful to clarify that Bricks is not a P2P lender and we are unique in many respects. While funds with Bricks constitute unsecured loans and are not secure deposits, we believe we have a market-leading proposition, giving solid, sustainable returns for the following reasons.
First, our business is profitable, and we have built up substantial shareholder reserves which take any first loss. Our reserves significantly exceed the requirements laid down by the Bank of England for banks.
Second, the Directors and their families account for about one third of our funding and we share the same risk as everyone else. We meet every borrower in person and only lend to them if all three Directors decide to do so. With each and every loan we make we are mindful that 30% is our own money.
Third, we are funded by individuals and small businesses rather than institutions, which gives us far greater security of liquidity. We stick to our model of sensible lending in the South West.
We are proud to say that since our first loan in 2014, our investors have never had capital or interest lost or reduced due to loan losses.
All investors should think about risk, return and liquidity when considering an investment. We have a five year successful track record of doing exactly that.