A lot of small businesses, especially those that are seasonal in nature, often need short-term loans rather than long-term ones to have working capital for daily business needs, purchase goods, materials, inventory, and equipment, meet payrolls, or pay for services in order to function unobtrusively. They repay the loans in under a year, in most cases within the period of 90-120 days. As alternative lenders require less bureaucracy than traditional banks and finance loans much faster, small businesses can get necessary cash without making long-term commitments.
Not only businesses that borrow short term, but also investors that invest in those short-term loans gain a lot of benefits. The scope of the article is to look at some of them, give you a glimpse of how many of the benefits some of the biggest p2p lending platforms (Zopa, Mintos, Funding Circle, Lending Club, Assetz Capital) as well as Debitum Network have and also give our investors a special offer for investment.
Less psychological stress
Waiting for the maturity of a loan can be quite a psychological drag for any investor. Uncertainty about the outcome (possible default) causes significant stress and anxiety for many investors. Even with the safest platforms loans occasionally default and not knowing whether this or that loan may default is a serious disadvantage for investors that invest on p2p platforms that concentrate on long-term loans (1-5 years). Thus, short-term loans (from 1 to 5 months) is psychologically advantageous for an investor. One can easily imagine the impact of having invested for 3 years, waiting patiently through the period and finding out that the loan he has invested in has defaulted. And if the platform does not offer buyback guarantee for investors, all invested money would be lost.
Smaller likelihood of default
It is likely, that if the borrower has been paying off a loan for 10 months out of 12, he will unlikely default on it if there are just 2 months left till the maturity. Thus, on Debitum Network, our partner loan originators (brokers) upload business loans that have a few months left till the maturity date (they have been issued and successfully been partly paid back before being listed on the platform). Borrowers have to prove that they are solvent and they do that by paying the bulk amount of loan before it is uploaded on our platform. Furthermore, most of the loans on Debitum Network are protected under broker’s buyback guarantee. So, even if these short-term loans default, investors will not lose any money, plus get back outstanding interest.
Smaller amounts to invest
Loan amounts for short-term loans are typically smaller and thus investors can quickly finance those, while borrowers will most likely pay those out. It is far easier to pay off a loan of 5,000 Euros than the one for 50,000 Euros. The average loan amount on Debitum Network is 9,000 Euros. And as the minimum investment amount is just 10 Euros any investor can contribute to the financing of small businesses around the world and make attractive interest from day one.
Faster turnover of capital
Faster movement of funds is another great advantage for investors investing their capital in short-term loans. One can diversify 100 Euros in 10 different loans of 2 months maturity, earn 7-11% annual interest and after successful repayment reinvest both principal and interest earned on previous investments. Investing in longer-term loans investor’s funds can get stuck in non-liquid assets. Investors investing on p2p platforms effectively become lenders themselves and often have to wait out the entire maturity term without the realistic possibility to get out of their positions, particularly if a platform does not offer a liquid secondary market for investors to sell their loans to other investors at discounted prices.
Having the above-mentioned advantages in mind, let us look at 3 players in p2p lending market Assetz Capital, Mintos and our own Debitum Network and see how they compare.
It is obvious from the table above that short-term loans (from 1 to 5 months) has become more popular with investors in recent years. No wonder Mintos has become a leading p2p lending platform in Europe. Short-term loans comprise the biggest amount of loans on their platform. Debitum Network is similar to Mintos in this regard as most loans on the platform are short term. Additionally, we have independent 3rd parties doing credit scores and risk monitoring options, thus potential investors can enjoy all of the advantages that short-term loans have over long-term ones in a transparent ecosystem.
Assetz Capital still remains one of the biggest alternative lending platforms in the UK surpassed only by Ratesetter and Zopa. Loans on their platform might be too long in duration for most investors who want a faster turnover of capital. Similarly, they do not have a buyback guarantee (loan originators are not obliged to buy back the loan if repayment is late by a specific number of days), even though other guarantees are in place.
Huge loan amounts (average of 800,000 Pounds for Assetz Capital) require participation from lots of investors to cover the full sum and may take a lot of time to implement. Having in mind that some loans may default, it would be a great disadvantage for those who have committed their capital in the loans to wait until maturity and, then, see a defaulted loan. From an investor’s point of view, it would be convenient to have smaller (5000 – 10000 Euros) and shorter-term loans (2 – 4 months) just as in the example with Debitum Network or Mintos, for the reasons discussed above.
Debitum Network has been updated with new assets available for investment. This time we uploaded various assets of Food Products, Freight Transport & Transport Services companies. All new assets have buyback guarantees and a high credit score. They range from 3 to 7 thousand EUR, so hurry up and start your month by making an investment, which will bring you ROI within the next 40 days.
Check out our TOP 3 short-term assets recommended for investment!
Disclaimer: Investments in financial products are subject to market risk and any investment should only be done with risk capital. The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.