Linked Finance
Linked Finance is an Irish P2P platform that started in 2013 and specialises in Euro-denominated business loans, up to EUR 300.000, for small and medium-sized enterprises. So far, the platform originated c2100 loans for EUR 92m, with volumes growing steadily each year.
Interest rates are between 6% and 17.5%, depending on loan rating and duration:
Their reported default rate to date is 1.05%, quite low; it is important to know that these p2b platform performance should be judged after a full economic cycle: Linked Finance opened its book right after the last recession in Ireland and their default rate will most likely increase once the next recession hit the country.
LF has a nice interface which makes investing easy to understand and quite fun: it’s interesting to read about the projects on offer and decide where to invest; investors can start with as little as €50. I started to invest in 2017 and the sing-up/identity verification was quick and easy…as far as I recall.
What I am reading now:
I never made a direct investment, I have only used the auto-invest feature: it works well and it is easy to set-up; here is my current configuration.
LF does not provide statistics relative to each Grade, so I put a floor at 10% as minimum yield and avoided riskier tranches; there is no buyback or any other loan guarantee. So far I only invested in loans with maturities of 2 years or higher, but I guess the reason is that LF did not originate yet loans with shorter maturities. Maybe in the future I will adjust the autobid settings to reflect this aspect, mindful of the possible additional risk. I would like to see a feature to limit the exposure to a single counterparty: right now I have two to loans to the same borrower, which is not great from a diversification point of view.
This is my current situation:
Defaulted loans repaid 66% of original principal as of today, not considering interests. I did not experience any relevant cash drag since my initial investment of EUR 2,000.
The most attracting feature of LF is to offer exposure to a sector, Irish SME credit, that is difficult to find in all the other, most known, p2p platforms (the only free lunch in finance is diversification); the Irish economy did great since the last recession, my hope is that after a full credit cycle platform profits will stay above 7%, but only time can tell. So far, based on my research, LF is offering better returns than Funding Circle and October, the closest 'competitors' in SME lending in Europe, but it is early to draw any conclusion.
The most attracting feature of LF is to offer exposure to a sector, Irish SME credit, that is difficult to find in all the other, most known, p2p platforms (the only free lunch in finance is diversification); the Irish economy did great since the last recession, my hope is that after a full credit cycle platform profits will stay above 7%, but only time can tell. So far, based on my research, LF is offering better returns than Funding Circle and October, the closest 'competitors' in SME lending in Europe, but it is early to draw any conclusion.
Follow me on Twitter @NProtasoni
Interesting comments. I note you haven't factored in the tax treatment in your comments. As the capital losses and platform fees would not be tax deductible in Ireland the net rate would be very low and in danger of being negative.
ReplyDeleteHi Saoi, good point. I usually do not talk about tax implications simply because they are specific to the tax residence of the investor. Taxes have huge implications on investment returns and each investor should be aware of that, I do not give any advice because what makes sense for a specific person can be bad for another one.
Delete