Linked Finance - A viable investment?

littlevillage

Cute Hoor wrote: »

No need to be worried (I hope), the term of all of their loans (even if the borrower repays early I think) is 3 years, with 36 monthly repayments. So in your example it is not 12% pa nor is it 4% pa.

Here is a simple example:

You lend €100 to Business X on 17/8/2015 at 10%.
Over the 3 years you will receive €114.22, receiving on average €3.17 each month starting on 17/9/2015.

The interest element over the duration of the loan is €16.17 but Linked Finance keep €1.95 as their fee (1.2% pa).

I would be very worried about a business that was willing to pay 15% (or anything near it) pa when they would expect to get a bank loan at 5.7% APR!!

Spinning my wheels at the moment regarding investing in this ?

That is my exact question too... the rates of interest charged by Linked Finance to borrowers seem exorbitant. Why would a company even go to them for a loan (unless maybe that business had a poor credit record with the standard lending channels)


Anybody can walk into a bank or Credit Union and get an unsecured loan of upto €30,000 for about 7% interest (Unless you have a blot on your credit history)
Linked Finance are charging in the region of 15% on most of their loans for similar amounts. What gives ??

gordongekko

littlevillage wrote: »

Spinning my wheels at the moment regarding investing in this ?

That is my exact question too... the rates of interest charged by Linked Finance to borrowers seem exorbitant. Why would a company even go to them for a loan (unless maybe that business had a poor credit record with the standard lending channels)


Anybody can walk into a bank or Credit Union and get an unsecured loan of upto €30,000 for about 7% interest (Unless you have a blot on your credit history)
Linked Finance are charging in the region of 15% on most of their loans for similar amounts. What gives ??

Did you read the example you quoted?

littlevillage

gordongekko wrote: »

Did you read the example you quoted?

Anybody can walk into a bank or Credit Union and get an unsecured loan of upto €30,000 for about 7% interest (Unless you have a blot on your credit history)
Linked Finance are charging in the region of 15% on most of their loans for similar amounts. What gives ??


...
So are you saying that small business's are NOT able to get loans for anything less than 15% from regular lending channels and this is why the likes of Linked Finance can get that return ?

ShoulderChip

littlevillage wrote: »

Anybody can walk into a bank or Credit Union and get an unsecured loan of upto €30,000 for about 7% interest (Unless you have a blot on your credit history)
Linked Finance are charging in the region of 15% on most of their loans for similar amounts. What gives ??


...
So are you saying that small business's are NOT able to get loans for anything less than 15% from regular lending channels and this is why the likes of Linked Finance can get that return ?

Yes

Cute Hoor

littlevillage wrote: »

Spinning my wheels at the moment regarding investing in this ?

That is my exact question too... the rates of interest charged by Linked Finance to borrowers seem exorbitant. Why would a company even go to them for a loan (unless maybe that business had a poor credit record with the standard lending channels)


Anybody can walk into a bank or Credit Union and get an unsecured loan of upto €30,000 for about 7% interest (Unless you have a blot on your credit history)
Linked Finance are charging in the region of 15% on most of their loans for similar amounts. What gives ??

I think you may have missed a pretty crucial bit 'pa' in the example you quoted.

I presume (hope) that a business couldn't walk into their local Credit Union and get an unsecured business loan for €30k, irrespective of their credit rating, surely this is not the raison d'etre of a Credit Union, some (not many) CU's got their fingers badly burned doing dodgy lending, I would hope that has ceased.

littlevillage

I am not a small business owner, so I don't know exactly what the rate of interest for a loan would be... but I would have assumed there were ways of getting money for less than 15-16-17% interest PA. Whether that be from Banks/Credit Unions or through government agencies like the various Enterprise boards or Microfinance Ireland etc.

My story : I was seriously considering investing 5-10k in this company some weeks back. I'm now not so sure.

There are a few things that worry me.

- The Model seems unsustainable into the future. The rates of interest they charge to borrowers is too high and only "distressed" borrowers (eg. poor credit history) are going to pay that. If the rates for borrowers get more competitive in the future (which it surely will have to), then the rate of return for lenders goes down and they start to withdraw money and the whole thing unravels.

- Its easy to put money into Linked Finance. Not so easy to get it out though. The lender puts in a chunk of money upfront and only gets it back piece-meal. Also there are limits/charges on withdrawals to further discourage withdrawals.

- The Lender bears all of the risk. LF gets its 2.5% of every loan upfront and an additional 1.2% every year so all its got to lose (eventually), is its good name and then only if massive 40-50% of the borrowers start defaulting.

- LF is not a real Financial intermediary (not governed by Financial regulation) so who knows what is really going on behind the scenes. Do they keep sufficient capital reserves to pay back every lender if they all decided to "cash out" in the morning. The checks they do on borrowers are entirely private.

- They seem to go softly softly on loan defaulters. (Maybe this is by design as they do not want to be in the papers/courts and scare off potential borrowers)

- A Classic pyramid scheme uses a seemingly plausible investment strategy that offers high returns and uses the money coming in from new recruits to pay off early stage investors. At some point the schemes get too big, the promoter cannot raise enough money from new investors to pay earlier investors, the pyramid collapses and investors get burnt..


Can anyone re-assure / contradict me ?

Cute Hoor

littlevillage wrote: »

I am not a small business owner, so I don't know exactly what the rate of interest for a loan would be... but I would have assumed there were ways of getting money for less than 15-16-17% interest PA.

You are not paying '15-16-17% interest PA', you are paying a max of 15% (and absolutely no loan has been charged out at an interest rate as high as 15%) over 3 years.

littlevillage wrote: »

There are a few things that worry me.

- The Model seems unsustainable into the future. The rates of interest they charge to borrowers is too high and only "distressed" borrowers (eg. poor credit history) are going to pay that. If the rates for borrowers get more competitive in the future (which it surely will have to), then the rate of return for lenders goes down and they start to withdraw money and the whole thing unravels.

See above! The rate for borrowers has become more competitive, the rate for lenders has gone down, yet there is an ever increasing number of lenders (the reason for the rates becoming more competitive). When the interest rates being offered to lenders becomes unattractive to them they will start to drift away leading to the interest rates becoming competitive again. While you have good borrowers wanting to borrow at competitive rates and lenders who feel they can get a (significantly) better rate than they can from the financial institutions it is difficult to see how it will unravel.

littlevillage wrote: »

There are a few things that worry me.

- Its easy to put money into Linked Finance. Not so easy to get it out though. The lender puts in a chunk of money upfront and only gets it back piece-meal. Also there are limits/charges on withdrawals to further discourage withdrawals.

Very easy to put money in. By definition it is not as easy to get your money out, this is what you have signed up for, you are lending out your money for 3 years, so you won't be able to get your money out in full until those 3 years are up, there is no mystery to it. If you have money in your account and you want to get it out, you can, no problem, read their terms and conditions.

littlevillage wrote: »

There are a few things that worry me.

- The Lender bears all of the risk. LF gets its 2.5% of every loan upfront and an additional 1.2% every year so all its got to lose (eventually), is its good name and then only if massive 40-50% of the borrowers start defaulting.

Correct, and this is what you are signing up for, and this is LF's business model, they are not a business version of SVDP.

littlevillage wrote: »

There are a few things that worry me.

- LF is not a real Financial intermediary (not governed by Financial regulation) so who knows what is really going on behind the scenes. Do they keep sufficient capital reserves to pay back every lender if they all decided to "cash out" in the morning. The checks they do on borrowers are entirely private.

LF is not governed by the Financial Regulator

littlevillage wrote: »

There are a few things that worry me.

- They seem to go softly softly on loan defaulters. (Maybe this is by design as they do not want to be in the papers/courts and scare off potential borrowers)

What makes you think they go softly softly on loan defaulters.

littlevillage wrote: »

There are a few things that worry me.

- A Classic pyramid scheme uses a seemingly plausible investment strategy that offers high returns and uses the money coming in from new recruits to pay off early stage investors. At some point the schemes get too big, the promoter cannot raise enough money from new investors to pay earlier investors, the pyramid collapses and investors get burnt..

My idea of a classic pyramid scheme is one where members recruit other members into the scheme to pay their initial entry fee (+bonus) with no product or service to back up the scheme. If you decide to have a piece of a loan for a butcher shop in Kilrush that wants to install new refridgeration units, that is exactly what you are doing, Kilrush exists, the butcher shop is there, the man needs a new unit (you can go in and ask him yourself), they are all real. The butcher obviously wants to be able to repay the loan to you, because if he can't it means that the poor unfortunate man is gone out of business, which tbh is a whole lot tougher on him than you who have lost your couple of quid (unfortunate and all as that is).

killasser

I have been investing small amounts to play with it a little. Some of what I discovered:

1. It seems investors don't understand the actual annual interest rate that they are making. I see some investing at 6%. That is 6% over 3 years or 2% per year. When LinkedFinance takes their cut of 1.2% per year, it only leaves .8% interest per year.

2. This is an unsecured loan. If the company does not pay back any of the money from day 1, you lose everything.

3. You are investing in established businesses, not startups. The probability of them defaulting on the loan is slim.

lcwill

killasser wrote: »

I have been investing small amounts to play with it a little. Some of what I discovered:

1. It seems investors don't understand the actual annual interest rate that they are making. I see some investing at 6%. That is 6% over 3 years or 2% per year. When LinkedFinance takes their cut of 1.2% per year, it only leaves .8% interest per year.

2. This is an unsecured loan. If the company does not pay back any of the money from day 1, you lose everything.

3. You are investing in established businesses, not startups. The probability of them defaulting on the loan is slim.

Sorry to break this to you but only one of the three points above is correct.

Bubbaclaus

killasser wrote: »

I have been investing small amounts to play with it a little. Some of what I discovered:

1. It seems investors don't understand the actual annual interest rate that they are making. I see some investing at 6%. That is 6% over 3 years or 2% per year. When LinkedFinance takes their cut of 1.2% per year, it only leaves .8% interest per year.

It's not 2% per year. It's 6% per year on the principal outstanding calculated monthly.

cruhoortwunk

Has anyone got a formula I could use to calculate actual interest. Eg for €100 loan over 3yrs at 12%.
I know its 12% of the outstanding balance, as they are paying you back monthly. But is there a formula I can use to work out what interest is received at the end of the 3 year term?

traprunner

cruhoortwunk wrote: »

Has anyone got a formula I could use to calculate actual interest. Eg for €100 loan over 3yrs at 12%.
I know its 12% of the outstanding balance, as they are paying you back monthly. But is there a formula I can use to work out what interest is received at the end of the 3 year term?

I think someone had calculations in this thread: http://www.boards.ie/vbulletin/showthread.php?t=2057529370

lawred2

clear thinking wrote: »

Central bank has put a nail in the coffin in this, absolute joke given how it is booming in the UK and Europe with full government support!

http://www.centralbank.ie/press-area/press-releases/Pages/ConsumerNoticeCrowdfunding.aspx

Have they made any utterances since on crowdfunding?

grandlad

I only see 7 borrowers in the "Live Business Loans" section with 2 of them being closed and the others ending in a few days.

Is there a p2p lending site with more loans to choose from?

Merowig

grandlad wrote: »

I only see 7 borrowers in the "Live Business Loans" section with 2 of them being closed and the others ending in a few days.

Is there a p2p lending site with more loans to choose from?

Mintos
but many are private loans in Eastern Europe

Turkus

Anybody having trouble contacting Linked Finance lately - been waiting a week for a reply for Customer Service!!

garrettod

Hi,

Not tried recently, but usually get a reply back in 24-48 hours

Have you tried telephoning them ?

Contact Details

The address of our Customer Contact Centre is:
16 Lower Liffey Street, Dublin 1, D01 P0E0, Ireland.

Email: help@linkedfinance.com
Phone: 01 906 0300

Turkus

Hi Garrettod,

This is solved but only after three emails and two phone calls over a week. I get anxious when I can't contact someone who owes me money!

garrettod

Turkus wrote: »

....I get anxious when I can't contact someone who owes me money!

And rightly so !

It's hardly good customer service, to leave someone waiting for a prolonged period of time without any sort of response, so I fully appreciate where you are coming from.