When it comes to P2P lending, all loan books are not created equal. Some Linked Finance users do better than others. We’ve analysed the key traits that make P2P lenders successful and put together these ‘4 top tips’ that you can use to build a better loan book and make attractive, long-term returns.
1. Mix it up
It’s better to lend little and often than to lend big to a smaller number of businesses. The most successful lenders on Linked Finance minimise their risk by spreading their funds across a large number of loans.
If you have €10,000 to lend it’s much better to lend €100 to one hundred businesses than €1,000 to ten. Spreading your funds like this allows you to ensure you our not over-exposed to any one business. Over time, you should seek to ensure that you are not lending more than 1% or 2% of your funds to any one business.
It is also worth ensuring that you spread your risk across industries, counties and company sizes. A broad mix of companies on your book means that you are less likely to feel the impact of a downturn in a particular industry or region.
2. Lend Again
Albert Einstein said it was the most powerful force in the universe and our most successful lenders understand the power of compound interest. Don’t leave money sitting in your account earning no interest.
As your loans are getting repaid, use your funds to re-invest in new loans. This is where you can really boost your returns by capitalising on the compound effect. Our top-performing lenders have realised that redeploying capital as soon as it is available means that your money is working harder for you at all times.
Autobid is a great way for you to ensure that you are not missing out on opportunities and that funds won’t sit in your account earning no interest.
3. Play the Numbers
When choosing businesses to lend to, you’ve got two options. Firstly, you can play it safe. Do your research. Analyse each business. Study their financials. Ask questions. Dig deep enough to ensure that they are likely to repay this loan. This can require a lot of time and good commercial understanding but it’s a valid approach for lenders who want complete control and who don’t have an appetite for risk. That said, there are no guarantees and even the most can discerning lender might encounter the occasional bad loan.
On the other hand, our biggest lenders play the averages. They use features like Autobid to spread their funds across the widest number of loans possible. They accept that there will always be the odd loan that goes bad but by lending to as many businesses as possible, you are likely to see levels of non-performance that better reflect the low average across the entire marketplace.
As always, it’s up to you to decide where to lend your money and which businesses you believe are a secure prospect.
4. Stay Plugged In
Keep up-to-date with the marketplace. Stay abreast of new features and developments. Give us feedback. Ask us questions. Look out for our daily loan updates. Log-in to your account regularly to make sure you have sufficient funds.
Our top lenders get involved. They use the platform everyday and they are the first to take advantage of the new features and updates we provide. They are the first to ask us questions and suggest improvements.
If you’ve just started building your Linked Finance loan book, you can use these for tips from our top lenders to help take your lending to the next level.
Set yourself a target of lending to 100 businesses between now and the end of 2016.