Reducing risk
Peer-to-peer lending is not just for adventurous investors, as Loanpad founder and chief executive Louis Schwartz explains…
ALTERNATIVE finance is – by its very nature – outside of the mainstream. It is a form of lending that comes with a different type of risk and as such it often attracts a different type of investor. But Louis Schwartz, founder and chief executive of peer-to-peer lending platform Loanpad, is on a mission to try to reduce risk to a point where even the more conservative investors are catered for.
“Of course, savings and investments are different and shouldn’t be compared,” says Schwartz. “So, whilst we don’t want to compare our product to savings, we are trying to be the closest thing to a savings product in the alternative space.”
Loanpad is doing this by taking an unusual approach to account management and credit risk – an approach that has been two years in the making.
The platform offers two accounts, where users can view a clear transaction history at the touch of a button. Interest is paid daily, and it can be reinvested or withdrawn at any point so that investors can benefit from compound interest as well as a high level of liquidity.
But Loanpad’s real USP is its attitude towards investor risk. In the case of a default, the platform’s structure enables it to shield investors from at least the first 25 per cent of any shortfalls and often 50 per cent or more.
“We’ve created a senior structure whereby our investors are only exposed to a certain level of the security, as we have an experienced balance sheet lender retaining a large amount – generally 25 per cent to 50 per cent – on a first-loss basis,” says Schwartz.
“There is no one else in the P2P sector creating a structure with this much ‘skin in the game’. Obviously, many companies have provision funds but they generally represent a very small percentage of the overall loanbook – maybe one or two per cent.
“We are enabling investment into loans where there’s at least 25 per cent ‘skin in the game’ from an experienced balance sheet lender.”
By prioritising investor security, Schwartz concedes that Loanpad is not going to be the platform that offers the highest rates, but this was never his end goal.
“We’re very clearly aimed at the lower end of the risk scale, offering unparalleled security for our investors,” he says. “We aim to be the lowest-risk P2P platform bar none. And we can’t wait to bring a fresh new approach to alternative lending.”
Click here for more information on Loanpad.
