On this P2P lending glossary page you’ll find all the important terms you’ll encounter as an investor in P2P lending platforms around the world, with Mintos being my favorite platform. If there are any other terms I missed out on, let me know and I’ll add them in.

AML – Anti-Money Laundering. It refers to a number of policies that governments, banks, and financial institutions have to abide by. They are obligated to proactively monitor clients and new customers so corruption and money laundry can be prevented. They also have to report any kind of financial crime. When you as an investor are asked to supply picture id, address id and documentation on where the funds you are investing are coming from by e.g. supplying bank statements and copies of your paychecks, this is part of the AML procedures.

Annuity Type Loan – a loan in which both the loan interest and the principal will be paid periodically

Auto Invest – a tool for automated purchases of Claims on the Platform, functioning according to the User’s selected settings and used by the User to purchase Claims on his/her own behalf in accordance with the selected settings.

Borrower – a natural person or legal entity, wherewith the Loan Originator has concluded a Loan Agreement

Borrower APR – Annual Percentage Rate (APR) is the cost of credit as a yearly rate. It is designed to accurately disclose the true cost of credit and provide a standard basis of comparison for the costs of credit.

Bridge Loan – a short-term loan used until permanent financing is secured, or current obligations met. It provides immediate cash flow required to achieve a specific target, such as enhancing the value of the property or selling the underlying asset

Bullet Type Loan – a loan in which the loan interest will be paid periodically, with the principal amount being paid at the end of the loan period

Business Loan – a loan used to cover day-to-day expenses of the firm, acquisition of goods or equipment, business expansion, pending obligations, etc.

Buyback Guarantee – a buyback guarantee is a guarantee usually issued by the loan originator to the investor for a particular loan, that confirms the loan originator will repurchase the loan from the investor if that particular loan is delayed by more than a particular number of days, typically 60 days.

Cash Drag – money sitting in your P2P lending account that is not being lent. This is usually due to the platform not being able to offer any loans that match your Auto Invest criteria.

Crowdfunding – financing a project through a crowd of people instead of the traditional route of bank loans.

Crowdlending – a form of investment in which a group of people lend money to individuals or companies in exchange for interest, usually through an online platform.

Default rate / Delinquency Rate – the ratio between the value of defaulted loans and the value of the total loan portfolio.

Development Loan – a loan used to finance the construction or planning process of a project

First ranking mortgage – A lender of a first ranking mortgage is the lender that has the first right to proceeds from the forced sale of the property.

Full Bullet Type Loan – a loan in which both the interest and the principal will be paid at the end of the loan period

Installment Loan – a loan that is repaid through a set number of scheduled payments or installments; the minimum number of payments is usually limited to two. The loan term may last between a few months to 30 years.

Invoice Financing (also factoring) – a way for businesses to borrow money against the amounts due from customers’ invoices. When a business sells a product or service to a customer or another business, it often happens on credit in the form of an invoice with a number of days until the amount owed is due.

KYC – Know Your Customer, alternatively known as know your client or simply KYC, is the process of a business verifying the identity of its clients and assessing their suitability, along with the potential risks of illegal intentions towards the business relationship.

Loan Agreement – a loan, lease, credit agreement or a financial arrangement of different nature concluded between the Loan Originator and the Borrower.

Loan Originator – a lending company which is the Creditor, who, in compliance with the co-operation agreement concluded between the Creditor and the Platform, has authorized the Platform to transfer the Loan Originator’s Claims towards the Borrower, by using the Platform, and on behalf of the Creditor, to take other steps prescribed in the Agreement and in the Assignment Agreement.

Loan-to-Value (LTV) –  refers to a ratio between a loan amount and the collateral’s market value. An LTV ratio of 50% would mean that collateral’s value is twice that of the loan.

Payday Loan – a small, short-term unsecured loan which is sometimes referred to as a “cash advance”. Payday loans require the consumer to have a previous payroll or income, employment records, and a checking account. The repayment of these loans is not necessarily linked to the borrower’s payday.

Primary market – market in which we investors purchase loans or shares from the platform or loan originator.

Principal – the amount of money you originally put into your investment and now earn interest on in return. When you borrow money, it refers to the amount of money you borrow, excluding interest payments and fees.

Reverse Auction – In a conventional auction each bidder makes an individual judgement on how much the item is worth to them and bids up to that limit. The item is then won by the person who valuers it highest. In a conventional auction items usually go for above the reserve price; that’s kind of the point. So in a reverse auction for a loan each lender decides the minimum rate they are willing to accept from that borrower and the loan is funded by the lender(s) who are prepared to lend at the lowest rate.

ROI – Return on investment (ROI) is a financial metric used to analyze the efficiency of an investment. ROI = profit from an investment / investment cost, and is usually expressed as a percentage.

Secondary market – a facility that enables investors to trade loans between themselves. The secondary provides a mechanism to quickly sell your shares or loans for quick liquidity, and also provides a place to grab some good deals, since other investors might be offering shares or loans at a discount in order to achieve quick liquidity.

SEPA transfer – short for Single Euro Payments Area. It’s the newest format for cross-border Euro bank transfers. SEPA aims to make cross-border Euro transfers within this area equivalent to a domestic transfer within your own country. You should always use SEPA if available over wire transfers as they are faster and cheaper.

XIRR – a financial function that returns the internal rate of return (IRR) for a series of cash flows that occur at irregular intervals. It is commonly found in spreadsheet programs such as Microsoft Excel.

Open a Mintos account

Mintos is a peer-to-peer lending platform in Europe. Like many other FinTech companies of this type, it is based in the Baltic region; in Latvia specifically.

Currently, Mintos has four offices employing more than 160 people in Riga, Vilnius, Berlin and Warsaw.

Mintos started operating in 2015 but has experienced rapid growth due to getting many things right and becoming popular with financial bloggers due to its ease of use and transparency.

The average interest rate is around 12%, with close to 500,000+ investors registered worldwide and 600m euros under administration.

Another important statistic to look at is the loan book growth, and here again, Mintos is doing very well as can be seen in the following screenshot.

The total money invested so far is higher than 8 billion Euros, which is a staggering number for such a young platform. There is no doubt that Mintos is the biggest player in P2P lending in Europe at the moment, with over 50% market share of the total p2p lending market. There are some good competitors, but none of them provide the security and track record that Mintos does.

The management team of Mintos is clearly displayed on the website with links to the Linkedin profiles of each person on the team. Mintos is currently the biggest employer in the P2P lending space.

Being able to view the team and also check out various YouTube videos with their CEO Martins Sulte enhances the feeling of transparency and peace of mind. I am one of those who take a look at these pages on a website and use them when judging whether I should invest on a platform or not. Everything counts.

I have personally interviewed Martins on my podcast Mastermind.fm, so be sure to check out that episode if you like podcasts.

Mintos is a platform that is in line with EU law, so when you invest you won’t have any trouble with your accountant or tax authorities back home in terms of explaining what you are doing.

Finally and very importantly, Mintos as a company is profitable, so they are not only running on investor money but are actually turning a profit, which means that they have a much higher chance of standing the test of time compared to some other competitors that are still in startup mode.

The biggest number of investors come from Germany, Spain and the Czech Republic respectively, but this is mostly a reflection of those countries’ familiarity with this type of investing. There are more than 340,000 investors that have used Mintos and they come from 90+ countries.

More than 60 lending companies offer their loans on the Mintos platform, with over 25,000 people working at these companies and spread over 33 countries, so you can have a global reach when investing on Mintos.

The company supports 10 languages via its multilingual support team, while the website is available in 6 languages and there are loans available in 10 currencies.

[Read more…]

In May 2019, UK lending platform Lendy (previously known as SavingStream) went into administration following an announcement by the FCA.

This didn’t come as much of a surprise to many investors on this platform since things had been going downhill for some time. However, it’s always a sad moment when a platform you’ve invested money in goes out of business, possibly taking with it your money.

It’s also a moment to learn some lessons that will serve us well for future investments.

How did Lendy Work?

Lendy was a platform where property developers could apply for and obtain bridging and development loans. Most of these loans returned 1% per month and Lendy sometimes paid bonuses on loans that were overdue or simply defaulted. The loans were for the ranges of 3-12 months however many of them ended up defaulting or running for much longer than agreed.

These loans were secured against property or land with LTV ratios of 11-70%. There was also a discretionary provision fund that allegedly held 2% of the entire loan book in reserve.

All loans were secured against property or land. Lendy used to loan against boats and other items but they veered away from these types of loans in favor of property developments. The loan-to-value ratios on the properties and land ranged from 11-70%.

According to estimates, around 20,000 investors were operating on Lendy, with a total of £165m invested in the firm at the time of its closure. The platform had offered returns of upwards of 12% before things went south. It had been operating since 2013.

The money investors had invested in loans on the platform is now in jeopardy. Many investors also had uninvested money on the platform, and there are also doubts whether that part of their funds can be obtained eventually or not.

Concerned investors have launched the Lendy Action Group (LAG) that has the following aims as stated on its website:

1. To act as a point of support and provide coordination, news and information to Lendy investors affected by their collapse.
2. To work collectively to recover our investment. We are many but dispersed – together we become strong.
3. To be a voice for investors to the administrators, regulators and press.
4. To explore potential opportunities for further actions (if they become necessary and legal basis can be defined for such).

ORCA Money’s chief executive Iain Niblock has slammed failed peer-to-peer platform Lendy as a “typical example of poor P2P lending”, as he urged investors to seek out less risky loans.

Niblock who also co-founded the P2P investment aggregator and analysis firm said that it was “no surprise that Lendy had gone into administration, citing the platform’s “extremely poor” loan book performance and regulatory issues, which had been a cause for concern among investors for some time.

“Disappointingly, the lender was at one time one of the more popular UK P2P platforms with cumulative lending volumes reaching £428m,” Niblock added. “Over 22,661 lenders were attracted to its simple one percent interest per month offering.

“The platform grew rapidly in 2016 with cumulative lending growing from £79m by the end of 2015 to £271m by year end 2016. The company has suffered from extremely poor loan performance with worryingly high numbers of loans in defaults. Currently, on the platform there is £97m worth of loans in default and, only £65m of loans repaying.”

Now that an investigation is underway, it has become apparent that there was foul play by the owners of Lendy, Liam Brooke and Tim Gordon (see video of them further down):

Detailed investigations have been undertaken into the Company’s affairs during the period covered by this report, with the assistance of the Joint Administrators’ instructed solicitors Pinsent Masons LLP. The investigations have included carrying out reviews of the Company’s books and records, performing detailed analysis of the Company’s bank statements and reviewing the results of key word searches of the c480,000 Company emails held by the Joint Administrators. The Joint Administrators have now also carried out interviews with both Liam Brooke and Tim Gordon, the former directors of Lendy. The investigations have been concerned with a number of transactions, most significantly payments of approximately £6.8million that were paid to entities registered in the Marshall Islands for apparent marketing services carried out for Lendy. It is the Administrators’ position, however, that these payments were ultimately for the benefit of Liam Brooke and Tim Gordon. As a result of these investigations, on 1st June 2020 the Joint Administrators made an application to Court for a worldwide freezing injunction to be granted over the assets of Liam Brooke and Tim Gordon, as well as proprietary injunctions on the properties owned by companies linked to the directors, RFP Holdings Limited and LP Alhambra Limited. The Order was granted on the 4 June 2020. Proceedings have now been commenced against Liam Brooke, Tim Gordon, RFP Holdings Limited and LP Alhambra Limited. Owing to the nature of these claims, the Joint Administrators are unable to provide further information at this time. The Joint Administrators are continuing to investigate the affairs of the Company, however again, we are unable to provide further information at this time so as not to prejudice these investigations.

It is quite evident that they were scamming investors, as can also be indicated by this other article.

So let’s talk about those lessons I mentioned earlier. One of the biggest reasons behind my investing in P2P platforms and real estate crowdfunding is to learn how to invest as well as analyze my feelings when an investment is a success or when it tanks. The knowledge I get and the awareness of my feelings will guide my investing decisions further on in life, when being careful with my money will be of even more paramount importance due to aging, lower earning potential, and the necessity to support my children.

[Read more…]