Amid Brexit Uncertainty, Could Secured Loans Be the Answer?
This is a guest post from Growth Street, a peer to peer business lender which recently secured funding in excess of £7 million to scale its operation. Growth Street facilitates 30-day loans and automatically spreads investor’s capital across multiple borrowers.
Regardless of your opinion on Britain’s membership of the European Union, one thing most people are unlikely to dispute is the existing state of uncertainty that the UK finds itself in.
And in few places has the effect been felt so strongly as the stock market. The FTSE 100 kicked off 2019 down 1.6% after a year that saw the biggest annual decline since the 2008 financial crisis.
It may have left you thinking about how your P2P portfolio is balanced, too. A few questions might be occupying you at this time of the year: Am I adequately diversified? Am I satisfied with the returns I’m getting? And am I happy with the amount of risk I am taking?
One option could be to save with your high-street bank, which could offer guarantees on funds held in bank accounts of up to £85,000 as part of the Financial Services Compensation Scheme (FSCS). In recent years, P2P investing has been a useful avenue for investors happy to take more risk in order to make their hard-earned money work a little harder.
But, in these uncertain times, P2P investors may wonder whether they can continue to benefit. Could P2P lending secured against assets be the answer?
What is secured P2P lending?
A secured loan involves money being lent to a borrower with a proviso that, if they’re unable to repay, the lender can recover and sell certain assets, which can then be used to pay part or all of any debt owed.
A common example of secured lending within P2P is property-backed lending, where loans are secured against a property. This security can help to mitigate the risk to investors, and potentially makes property-backed lending an attractive proposition for those not keen on investing in unsecured loans.
Invest in secured lending without exposure to property
Even though secured loans might seem less risky to investors, some individuals may wish to pick investments that aren’t exclusively secured against property.
There are other ways for P2P investors to look to target a return from secured loans. Some business-focused P2P platforms, like Growth Street, secure loans against borrowers’ assets and can also accept personal guarantees from the business’s directors.
When applying for a secured loan, then, a prospective borrower might be asked to provide security over all its assets, which will include stock the business already owns, and physical assets such as machinery and other equipment. This would mean that in the event of a default, the P2P platform facilitating the loan would potentially be able to recoup some or all of the money lent to the business. This wouldn’t necessarily be the case with unsecured loans.
Incorporating secured lending into your portfolio
With uncertainty affecting established investment classes like stocks and property, we think P2P lending secured against business assets could have an important role to play in investors’ portfolios through 2019.
Remember though, secured P2P investing still comes with risk. In the unfortunate event of a default, there’s still no guarantee investors will get any money back from their investment: capital is definitely still at risk. It’s also important to bear in mind that P2P lending – unlike the bank accounts we mentioned earlier – is not covered by the FSCS, so your capital is not protected.
So, have you taken into account how uncertainty could affect your portfolio in 2019? With the P2P industry continuing to grow at a rapid pace, maybe it’s time to consider secured P2P loans as a solution.
Your capital is at risk if you lend to businesses. Peer to peer lending is not covered by the Financial Services Compensation Scheme.
Growth Street Exchange Limited (company no. 09495712) is authorised and regulated by the Financial Conduct Authority (FRN 739318). Our registered office is 5 Young Street, London W8 5EH.