So you have decided to consider peer-to-peer (P2P) lending as an alternative asset class, forming part of a balanced portfolio? It is important to note that diversification of an investment portfolio can bring the potential of a higher income yield, but also that higher returns come with higher risk. Therefore, as a starting point, you may only invest a small proportion of your portfolio into P2P lending.
The P2P lending market has many players, and some would say that it is a saturated market. It can often be difficult to differentiate one lending platform from another. Furthermore, you have to decide whether to lend to businesses, consumers, real estate firms or to finance invoices. Each type of loan brings with it its own benefits and risks.
Your decision has to be well considered, especially if you are new to the growing P2P lending sector. It is important to understand the benefits and risks associated with each type of lending and choose a platform that works for you.
If you were at the Master Investor Show in March, you might recognise the name Huddle Capital. Here are some reasons why might consider Huddle Capital as your platform for entering the P2P lending space.
1. Loan type
Usually, you will find that different platforms specialise in different types of lending, ranging from business lending and invoice financing, to real estate and consumer lending. Here, we explain the differences between each of them to help you decide which one is right for you.
At Huddle Capital, we chose to pursue the business lending niche because of our significant experience in this space, and we believe that business loans are far more secure than consumer loans. Companies use the finance to invest in growing a revenue base and thereby strengthen their business, and this is more likely to enable them to pay back a loan. Businesses also have assets which can offer security to lenders. The business itself can be an asset securing the loan, in addition to the Directors who can also stand as guarantors.
Consumer lending tends to involve smaller loan amounts, potentially with higher interest rates to reflect the higher risk profile of lending to consumers, especially for unsecured loans.
Before deciding to venture into the P2P lending space, investors need to make a firm decision on the type of lending they want to get involved in before deciding which platform is right.
2. Experience & strength of a platform
There are many P2P lending platforms operating in this market. Of course, all platforms need a regulatory license, so beware if a platform does not have one. In the case of Huddle Capital, we pride ourselves on legitimately operating as an appointed representative of an FCA (Financial Conduct Authority) authorised firm, and are now in the process of preparing to get our own license.
We at Huddle are backed by our parent, Access Commercial Finance, which provides support that is vital for any startup business. The parent injected sufficient financial and human resources to ensure that, as a new business, Huddle was supported during the early years.
We collectively have over 200 years’ experience within our senior management team. We are also leveraging the lending experience of the parent company, which is lending its own money to businesses. The Huddle Capital team has access to a ready-made network to tap into to find high-quality borrowers.
3. How platforms engage with their investors
Investor experience is what differentiates one platform from another. Investors will tend to stick with a platform that is the right fit for them, offers them a great experience and decent returns on their investments.
This is an area where Huddle Capital have put in the most effort. We have developed an entire business model on building an investor and borrower community and have placed great emphasis on educating investors and helping them to engage with one another.
Most platforms will use traditional forms of advertising to attract investors, which is less effective, especially for investors who may not be familiar with this new asset class. As it turns out, we discovered that there is a significant proportion of the investor community that is still unaware that P2P lending exists as an asset class. We are on a mission to change that, bringing new investors into this exciting and innovative space.
Huddle has taken a strategic decision to pursue a content-led marketing strategy. We provide educational content on our website and are planning to start introducing events where investors (and borrowers) can come together to learn and exchange ideas. We hope that over time, we can build a robust community of investors and borrowers who are loyal to the platform, because of their experience as well as the opportunity to be part of a bigger membership club.
4. Investing in giving back
In order to maximise returns from an investment, you want to ensure that costs are kept to a minimum. Most platforms will charge investors a fee in addition to levying a fee on borrowers. Even if there are no charges at the point of investing, investors will often attract a charge when they sell their loan in the secondary market. However, in the case of our platform, investors do not pay any fees, as all the revenue is made from the borrower.
We launched with the Huddle 100 campaign that rewarded the first 100 investors with 20% cashback on investments of up to £5,000. Many investors earned up to £1,000 bonus, paid out within 30 days of investment. This initial move demonstrated our commitment to ensuring that investors benefited as we launched.
In addition to Huddle 100, we have also launched Club Red, an exclusive club for investors investing over £25,000 per annum through our platform. Investors will earn £1,000 reward for investing the minimum amount, and will also get an invitation to our events and special promotions.
In the two loans that have closed on the Huddle Capita platform thus far, we offered a fixed 12% annual interest rate (not taking into account any defaults) in a market that on average pays investors around 5% net returns per annum, according to Altfi Data, the only firm tapping into actual P2P lending data.
In a market where it’s becoming harder and harder to differentiate, we feel we have found innovative ways to overcome this challenge.
If you are looking to venture down the P2P lending route, then consider Huddle Capital as one of your options. Start by visiting our P2P lending platform website for some great educational content, before deciding to venture into this new space.