Peer to Peer (P2P) lending, sometimes called Marketplace Lending, has been around in Australia for several years, but is only just now really taking off. Marketlend, a wholly owned subsidiary of Tyndall Capital Pty Ltd, is one of the newer players to market and we caught up with CEO Leo Tyndall for a quick Q&A.
Q: Why can P2B, or Market Lending, provide a better solution to the borrower?
A: Simply put it gives the borrower direct access to investors. In response to your question:
- It diversifies the lender base for the borrower enabling them to be able to reduce their reliance on the risk appetite of a lender;
- It offers the borrowers the ability to build their own investor base for future bond or equity offerings;
- It gives borrowers flexibility in the terms of their loan;
- It provides the ability to the borrower to offer security that is not centralized around property real estate;
- In the case of Marketlend there is flexibility to the borrower in the type of product it can obtain, either line of credit, debt finance or inventory finance;
- It removes a lot of the additional transaction costs by enabling the borrower to bypass the middlemen and go to the capital markets investors to get money;
- It enables the borrower to get lenders to understand its businesss.
Q: Why can it provide a better solution for lenders?
A: For lenders, it offers:
- High returns;
- Direct access to the borrower;
- A structure environment that gives them analysis of credit, loan management and collection facilities;
- For Marketlend, it offers them first loss protection in the form of insurance or cash collateral support;
- Real time reporting;
Q: Does it provide access to people who otherwise could not get a loan?
A: Marketlend will not lend to borrowers who are unable to get credit elsewhere; it can see how many queries a borrower has made, and it is not a lender of last resort. As Marketlend invests, it will not offer a listing on the marketplace that it is uncomfortable with the risk profile for. Furthermore it will not list or invest in startups or borrowers with defaults.
A: Can borrowers expect better priced loans than through traditional lenders?
Q: When a comparison is made for business loans not secured against property real estate, trade credit, debtor invoicing, it is definitely cheaper, varying between 4-8% in some cases.
Q: How do you manage the investment risk for lenders?
A: Other than the fact that investing in a term deposit has the backing of a rated bank, with insurance and cash collateralization, we would argue that the only increase in risk is the infancy of the industry and lower performance history, to date we have had all loans pay on time and no defaults.
Q: What is the approval process for a loan? How long does it take? Is it faster than traditional lenders?
A: Approval process is as follows:
- Borrower enters his details through a website application form on marketlend.com.au;
- After a 10 page completion, he either electronically signs his application or prints his application and returns the signed application back to Marketlend;
- Our credit officers are notified of the completed application, they will assess its merits, and determine whether to forward it assessment through the grading model or reject;
- Prior to grading, the application, the financials will be assessed by chartered accounts, and a report provided to assist in the grading model;
- The application is then put through a grading model, which is an automated model that takes approximately 65 factors into account to give a result as to the likelihood of the repayment of principal and all interest to the lender;
- After the result, the borrower is contacted to advise his grade, expected rate of interest and a commentary is prepared based an interview with the borrower about his business
- A listing is then put on the marketplace, where investors can bid on the loan
- This process usually takes around 12 hours, and as it is small business lending, I am told by brokers that this is quite quick and faster than the banks.
A: What risk profile of investor, in your opinion, is suited to P2B lending?
Q: Investors suited to the platform are investors seeking strong returns, with transparency. The investor must understand that this is not a bank, and that the industry is still young. We find we get investors from all areas, and it is the fact that they are disclosed all the facts that they can make their own assessment and chose different risk.