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strettie · 10-12-2015 5:10pm

Icwill,

Which borrower has gone into liquidation ?

when you say 75% still outstanding does this mean loan was less than 9 months old ?

Strettie

lcwill · 10-12-2015 6:42pm

strettie wrote: »

Icwill,

Which borrower has gone into liquidation ?

when you say 75% still outstanding does this mean loan was less than 9 months old ?

Strettie

Hi Strettie,

It's Manor Brands (also known as Blacksheep). It was about nine months old. There were about 27 repayments left. The email said we wouldn't be getting the next repayment but that they would be trying to recover the loan from the Directors.

benjamin d · 10-12-2015 9:29pm

Hey guys I've just started a little test account on Linked Finance with a very small amount. From reading about it, am I right in thinking that in order to make it work I'd need to keep repayments received rolling onto other loans as they're coming in, yes? So with the €50 minimum loan amount I'd need to start with, for example, roughly €600 or so at around 10% average to get a monthly repayment total over €50 and reinvest?

Nody · 10-12-2015 10:33pm

benjamin d wrote: »

Hey guys I've just started a little test account on Linked Finance with a very small amount. From reading about it, am I right in thinking that in order to make it work I'd need to keep repayments received rolling onto other loans as they're coming in, yes? So with the €50 minimum loan amount I'd need to start with, for example, roughly €600 or so at around 10% average to get a monthly repayment total over €50 and reinvest?

About 1500 EUR would be required because you don't get 10% for three years which means your starting capital has to be higher.

benjamin d · 10-12-2015 10:41pm

Nody wrote: »

About 1500 EUR would be required because you don't get 10% for three years which means your starting capital has to be higher.

Why 1500? Wouldn't I be keeping the interest rate rolling by having exactly enough (after the fee) to reinvest?

lcwill · 10-12-2015 11:04pm

Hi benjamin,

You are right in that the interest rate is what you get on your whole portfolio, and that you have to keep it lent out. No one is paying you for the repaid money sitting in your account.

To be able to make a new E50 loan every month from repayments (capital + interest) you would need about E1,200 investment at a bit over 10% interest. You would probably want at least that much invested in order to get enough diversification too.

I have E2000 of investments at around 11.7% average interest rate. In December I am supposed to get E62.54 of capital paid back, and E19.53 of interest = total repayments of E82.07 (minus 2.16 in fees). Everything gets lent out again as soon as I have E50 of repayments in the account (every 3 weeks or so).

benjamin d · 10-12-2015 11:25pm

lcwill wrote: »

Hi benjamin,

You are right in that the interest rate is what you get on your whole portfolio, and that you have to keep it lent out. No one is paying you for the repaid money sitting in your account.

To be able to make a new E50 loan every month from repayments (capital + interest) you would need about E1,200 investment at a bit over 10% interest. You would probably want at least that much invested in order to get enough diversification too.

I have E2000 of investments at around 11.7% average interest rate. In December I am supposed to get E62.54 of capital paid back, and E19.53 of interest = total repayments of E82.07 (minus 2.16 in fees). Everything gets lent out again as soon as I have E50 of repayments in the account (every 3 weeks or so).

Great thanks, I guess I hadn't done my sums properly!
Would the safe bet be to keep all the loans at the lower end near €50?

lcwill · 11-12-2015 12:04am

benjamin d wrote: »

Great thanks, I guess I hadn't done my sums properly!
Would the safe bet be to keep all the loans at the lower end near €50?

Yes definitely keep all your loans at E50, for now at least.

In this kind of investment diversification is essential so you want to spread your money across as many loans as possible to minimise risk.

Once you start getting up to 100 loans in your portfolio you could increase the loan amounts but I wouldn't increase before then.

Don't be in a rush to lend - decide the interest rate you want and stick to it. It will take you at least a month to lend out your first E600 in 12 different E50 loans, maybe even 2 months, but that is ok, don't go throwing it out E100 or E200 at a time at 8% just to get it lent. That is a recipe for disaster.

Brussels Sprout · 11-12-2015 8:30pm

daheff wrote: »

Even if you intend on reinvesting monthly...can you be sure that you will always find enough 'quality' investments?

They usually have about 20 new companies per month so if you're looking to reinvest your repayments then you should be able to find a few in here that'll meet whatever your criteria is.

Alternatively you could withdraw your repayments each month and invest them elsewhere.

daheff wrote: »

taking a worked example (and please somebody point out if i'm wrong):

Interest rate 12%
Loan amount 1000
Term 36 months

I work out that the monthly repayment is approx 33.21 EUR (principal & int). This then means that a total of 195.75 EUR interest is received over the life of the loan.
Quick cal means at 19.5% overall return, but per annum its more like 6.5%

Again, this is only true if you're leaving your money sit there. The beauty of it is that from the very first month your capital is being returned to you so you can reinvest it, meaning your real rate of return will be higher than this.

Nody · 11-12-2015 9:14pm

Brussels Sprout wrote: »

Again, this is only true if you're leaving your money sit there. The beauty of it is that from the very first month your capital is being returned to you so you can reinvest it, meaning your real rate of return will be higher than this.

There are a few problems with your though process here; first of all you assume that there will always be companies to invest in that are good enough quality; secondly you assume you can't do the same with any other type of investment and third you're not calculating how ROI works.

The reality is you get 6.5% return on the investment, that you reinvest the money into another company does not change the basic fact that your investment is paying out 6.5% interest and that you're putting money into something else. It does not matter if you take the 6.5% and buy a lotto ticket winning the euro lotto because your investment is still only giving you 6.5% still; the money you're investing back is a new investment (you've been given cash to your account, you decide to invest that somewhere else) and what you're trying to count as increased dividend is simply not true.

This also ties in with the second effect of increased risk (take the example above of 100 companies, how many read the financial reports, the cash flow, evaluated the future of the company etc.?) as you keep on having to increase the amount you borrow out and the chance that you get lazy (human nature, as they been vetted they should be ok so no need to check them personally or keeping track on a secondary loan, notices etc.).

lcwill · 12-12-2015 9:28am

Nody wrote: »

There are a few problems with your though process here; first of all you assume that there will always be companies to invest in that are good enough quality; secondly you assume you can't do the same with any other type of investment and third you're not calculating how ROI works.

The reality is you get 6.5% return on the investment, that you reinvest the money into another company does not change the basic fact that your investment is paying out 6.5% interest and that you're putting money into something else. It does not matter if you take the 6.5% and buy a lotto ticket winning the euro lotto because your investment is still only giving you 6.5% still; the money you're investing back is a new investment (you've been given cash to your account, you decide to invest that somewhere else) and what you're trying to count as increased dividend is simply not true.

This also ties in with the second effect of increased risk (take the example above of 100 companies, how many read the financial reports, the cash flow, evaluated the future of the company etc.?) as you keep on having to increase the amount you borrow out and the chance that you get lazy (human nature, as they been vetted they should be ok so no need to check them personally or keeping track on a secondary loan, notices etc.).

It think it is valid to look at your returns at portfolio level rather than individual loans.

And in most cases the key to peer to peer lending is just trusting the systems the platform has in place to vet borrowers and put the Autobid on. That way, with enough diversification, you returns will equal the average returns of all investors in the platform.

Picking winners is a losers game. Diversify and aim for average returns.

Cute Hoor · 12-12-2015 2:23pm

You have to trust the due diligence that LF are carrying out on these businesses to a great extent, how can an ordinary investor properly financially evaluate a business other than by reading the financial summary and asking questions. Evaluating the future of the business is a finger in the air at best, looking at how long a business has been in operation, how well they have survived the recession, the need for the products they are manufacturing/selling etc are probably the most you can do. How can an ordinary punter do a proper evaluation of a butchers in Kilrush?

Any business who looks for a loan from LF are doing so to help their business develop, not repaying that loan will mean they are gone out of business or they will be doing significant reputational damage to their business. LF have a vested interest in ensuring that the businesses they feature can and will repay the loan - any failure of a business to meet repayments will result in reputational damage to LF, multiple failures will put them out of business. And of course every lender wants every business on LF to succeed. So all three stakeholders have a vested interest in this process succeeding.

Of course all businesses will not succeed and all loans will not be fully repaid, to expect otherwise would be naive in the extreme. Over the last year LF, at a guess, have funded 250 businesses, of those 250 it appears one has failed (if there were more it is likely that one of us would have come across it), and that was after 3 repayments had been made. That is roughly a 0.4% failure rate. I would expect this failure rate to be higher, and it will I suspect over the course of the 3 year loans. Anybody who is lending on LF has to expect a certain level of failure.

I don't see any reason why the failure rate should increase though as the P2P model matures, there are literally thousands of very good businesses out there, good businesses who will need financial support from time to time to develop their business. Once LF continue doing their due diligence on potential businesses then everything should be reasonably OK.

I had a look at the autobid facility and shied away from it, I prefer to have a look at each loan offer on its merits, and decide based on what I see whether or not to invest, also means I am investing at varying rates of return. As you say Icwill, diversifying is the key, investing in a larger number of businesses will make the odd (very odd hopefully) failure easier to bear. Investing roughly the same amount (whether that be €50 or €1000) in each business you invest in will also help average out any failures.

Nody · 12-12-2015 4:32pm

Cute Hoor wrote: »

I don't see any reason why the failure rate should increase though as the P2P model matures, there are literally thousands of very good businesses out there, good businesses who will need financial support from time to time to develop their business. Once LF continue doing their due diligence on potential businesses then everything should be reasonably OK.

That only works as long as LF is competitive for the businesses though; how long do you think it will remain so? Banks are currently restrictive due to legislative requirements on core capital in the years to come (basically need to keep more cash in hand) and are currently stocking up but once there do you believe offering a 12% loan will be competitive (keeping in mind this is 12% on today's basically 1% base interest rates, so ~10 percent units above base as a rough estimate)?

What I expect will happen is the companies that can go to the bank/state investment quango will go down that route (better rates, lower repayments and longer terms); the once that can not (or the loans are to small) will keep doing P2P but that's going to decrease the quality of such companies as a whole (banks cherry picking the good companies leaving the rest). The second part I'd worry about is things are pointing in the right direction but what happens in another 2008 style recession? How many companies will simply then have to start giving up (after taking out one or two loans to try to keep the business running before failing; company liability after all)? This is why I'd be wary about thinking of it as a 30 year investment plan; I simply don't see the model having been properly tested in a difficult environment.

Brussels Sprout · 12-12-2015 5:06pm

Nody wrote: »

...

I think the heart of the disagreement here is that you're focusing entirely on the particular loan in one company whereas I'm looking at using the website as an investment tool overall.

If people invest all of their money initially and then leave the repayments pile up in the form of cash, then yes, they'll get a return of ~6% per annum.

That would be a poor way of using the website though.

Nody wrote: »

first of all you assume that there will always be companies to invest in that are good enough quality;

If there aren't companies that you wish to invest in then you can withdraw your cash repayments each month and invest them elsewhere. The key point is that you have the money back to do with it what you wish.

Nody wrote: »

secondly you assume you can't do the same with any other type of investment

Well you can't if you wish to get the stated annual rate of return.

If you have your money in, for example, a bank account that pays 2% per annum but you withdraw portions of the money throughout the year then at the end of the year overall your money will not have increased by 2%.

You can't have it both ways. If you want to receive the APR rate of the loan (12% in the example) then you have to be prepared to have your money tied up for the full amount of time. That's not how the individual loans work though.

Cute Hoor · 12-12-2015 5:24pm

Nody wrote: »

That only works as long as LF is competitive for the businesses though

Of course!

Nody wrote: »

how long do you think it will remain so?

Absolutely no idea, and when LF is no longer competitive and cannot get reasonable businesses requiring finance it will be time for me to leg it taking my money out as it is being repaid.

Duckett · 13-12-2015 12:30am

Pearse Roofing and Cladding went into vol liquidation with 32 repayments outstanding.

badzae · 13-12-2015 1:48am

Duckett wrote: »

Pearse Roofing and Cladding went into vol liquidation with 32 repayments outstanding.

Pearse Cladding received a loan for €30,000 on 5th February 2015. 4 payments were made on - Mar 5th, Apr 5th, May 5th and June 5th. They also had a 2nd loan for €35,000 which bidding ended on May 25th but the loan amount was never transferred to the borrower.

On June 11th lenders received an email from Linkedfinance:

"The loan auction for Pearse Roofing and Cladding Ltd finished on Monday 25th of May 2015. Our credit control team required a number of documents from Pearse Roofing and Cladding Ltd before we were prepared to advance their loan amount of €35,000. Despite numerous requests these documents are not forth coming so we have made a decision to not proceed with this loan and have returned the funds to all the lenders."

Then on July 8th we received this email to say they were in liquidation:

"On July 5th you were to have received a payment of €X to your account from Borrower Pearse Roofing. Unfortunately, we did not receive that payment from the Borrower so we contacted their bank with another Direct Debit request. Disappointingly, we still have not received the expected repayment. We have also contacted Pearse O'Connor directly to understand why this situation has arisen and have been informed that the company is now in to voluntary liquidation."

I think its worrying that there was such a short time between the second loan date and the liquidation date.

Loan 1:
linkedfinance.com/business-loans/investment/borrower/loan?id=2144

Loan 2: (this was fully funded but was cancelled by linkedfinance)
linkedfinance.com/business-loans/investment/borrower/loan?id=2485

Cute Hoor · 13-12-2015 1:47pm

badzae wrote: »

I think its worrying that there was such a short time between the second loan date and the liquidation date.

That certainly is worrying. It is also disappointing that a business would look for money so soon after getting the first loan and knowing they were in financial difficulties. It would be good to be able to see the Business Profile, Financial Summary, Validation and Q&A after the loan has closed, might give you some insight.

You can expect businesses to fail but the disappointing element here is that these 2 loans (and another one almost certainly on the way) have failed so quickly, second or third year maybe, but so early in the life of the loan, disappointing.

lcwill · 13-12-2015 2:28pm

Cute Hoor wrote: »

That certainly is worrying. It is also disappointing that a business would look for money so soon after getting the first loan and knowing they were in financial difficulties. It would be good to be able to see the Business Profile, Financial Summary, Validation and Q&A after the loan has closed, might give you some insight.

You can expect businesses to fail but the disappointing element here is that these 2 loans (and another one almost certainly on the way) have failed so quickly, second or third year maybe, but so early in the life of the loan, disappointing.

Actually on more transparent sites like Bondora the statistics show that defaults are likely early in the life of a loan and once they have made 5 or 6 payments the likelihood of default becomes very low. Could be the same here if only we had the full data.

Nody · 13-12-2015 4:26pm

Cute Hoor wrote: »

You can expect businesses to fail but the disappointing element here is that these 2 loans (and another one almost certainly on the way) have failed so quickly, second or third year maybe, but so early in the life of the loan, disappointing.

Actually I'd say it's quite normal; the company is failing but the owners think they can turn it around but need bridge money for <insert big deal/resolution/turn around/hail marry solution> so take out a loan with intention to pay it back when/if things work out. As it takes longer than expected they request another loan to keep them going and if it fails; well they have no liability anyway so why not go out on a limb and chance it?

It's the same with companies on the stock exchange who're regularly requesting cash injections except you get better transparency over the numbers.

Doodoo · 14-12-2015 10:41pm

Am I right in saying that the only costs involved as a lender is the linked finance fee and the capital gains tax due. What rates are these charged at?

newacc2015 · 14-12-2015 11:09pm

Nody wrote: »

That only works as long as LF is competitive for the businesses though; how long do you think it will remain so? Banks are currently restrictive due to legislative requirements on core capital in the years to come (basically need to keep more cash in hand) and are currently stocking up but once there do you believe offering a 12% loan will be competitive (keeping in mind this is 12% on today's basically 1% base interest rates, so ~10 percent units above base as a rough estimate)?

What I expect will happen is the companies that can go to the bank/state investment quango will go down that route (better rates, lower repayments and longer terms); the once that can not (or the loans are to small) will keep doing P2P but that's going to decrease the quality of such companies as a whole (banks cherry picking the good companies leaving the rest). The second part I'd worry about is things are pointing in the right direction but what happens in another 2008 style recession? How many companies will simply then have to start giving up (after taking out one or two loans to try to keep the business running before failing; company liability after all)? This is why I'd be wary about thinking of it as a 30 year investment plan; I simply don't see the model having been properly tested in a difficult environment.

Another important element to consider is the rebranded Business Expansion Scheme which is now called Employment Investment Incentive (EII) which companies are able to get more affordable finance and the borrower gets tax credits. The likes of O'Hara Brewery and Green Isle Foods have used it recently. Its more favourable for companies as the finance is a far more reasonable rate

strettie · 15-12-2015 10:41am

DooDoo,

Income through LinkedFinance is subject to income tax at your marginal rate ( 20% or 41% ) plus PRSI (4%) and I think USC within whichever threshold rate applies to you.

You receive no deduction for loan defaults.

Also does anyone know whether you are taxed on the gross interest earned or the net interest after deduction of Linkedfinance's 1.2% fee ?

In the UK from April 2016 lenders will be able to lend just over £15000 through a new ISA scheme and interest will be tax free.

Strettie

benjamin d · 15-12-2015 11:50am

Can anything be read into loans not being accepted days after bidding has closed? There's one at the minute that closed 4 days ago but no bids have been accepted yet.

Level 5 Vegan · 15-12-2015 12:48pm

benjamin d wrote: »

Can anything be read into loans not being accepted days after bidding has closed? There's one at the minute that closed 4 days ago but no bids have been accepted yet.

Not really, I think they have something like two weeks to decide if they want to take the loan or not. I think I've only seen a company reject an offer once or twice.

manonboard · 15-12-2015 4:45pm

benjamin d wrote: »

Can anything be read into loans not being accepted days after bidding has closed? There's one at the minute that closed 4 days ago but no bids have been accepted yet.

The only thing i've read into with that over the last year is that the business in question may be dealing with LF in the background with certain conditions in order to accept the loan.
If a loan has a high average interest rate, it makes sense for the business to perhaps discuss fees etc with LF. It makes no difference to the lender though.

The longer they take, the more likely it is they will not take the loan is also the other thing i've found. Again, usually interested rate related.

4 days is nothing though. That would be pretty standard.

benjamin d · 15-12-2015 4:48pm

manonboard wrote: »

The only thing i've read into with that over the last year is that the business in question may be dealing with LF in the background with certain conditions in order to accept the loan.
If a loan has a high average interest rate, it makes sense for the business to perhaps discuss fees etc with LF. It makes no difference to the lender though.

The longer they take, the more likely it is they will not take the loan is also the other thing i've found. Again, usually interested rate related.

4 days is nothing though. That would be pretty standard.

Yes I did note that the average interest rate was quite high at almost 14% so I suspect that's the reason for the delay.

gvzAxle · 17-12-2015 3:32pm

strettie wrote: »

Income through LinkedFinance is subject to income tax at your marginal rate ( 20% or 41% ) plus PRSI (4%) and I think USC within whichever threshold rate applies to you.

You receive no deduction for loan defaults.

An emphasis on the above, I've noticed a few people here mention CGT, which doesn't apply to interest earned through LinkedFinance.

strettie wrote: »

Also does anyone know whether you are taxed on the gross interest earned or the net interest after deduction of Linkedfinance's 1.2% fee ?

The FAQ on their new site says the following:

add up all interest paid for the period, deduct all fees paid an that will give you the total 'interest paid' for tax purposes

lcwill · 17-12-2015 3:53pm

gvzAxle wrote: »

An emphasis on the above, I've noticed a few people here mention CGT, which doesn't apply to interest earned through LinkedFinance.

The FAQ on their new site says the following:

From what I understand, for people tax resident in Ireland it is supposed to be taxed as income at your marginal rate (not CGT, not DIRT).

I actually live outside Ireland and will declare it as foreign sourced income and pay tax on it in the country I am resident it (which has a Double Tax Treaty with Ireland which allows this).

gvzAxle · 17-12-2015 4:00pm

You mentioned Bondora before, have you any experience with them? Also do you know of other p2p lending sites that are worth looking into?

LinkedFinance - new website

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