Peer to Peer lending (P2P) is quickly becoming a hot topic among consumer and commercial lending circles, and many more individuals and small business owners are turning to P2P sites for financing. While this is an exciting new option for borrowers and for those interested in investing in the new space, it will be important to do your homework to ensure you have chosen a responsible site.
MoneyLife recently reported on problems associated with investing on P2P platforms, and found that, “People sometimes lie. The information used by the P2P lenders comes from the borrowers and can be inaccurate or intentionally false. LendingClub states that it cannot verify income for 40% of its sample borrowers. For those borrowers who were asked to verify their incomes only 60% provided satisfactory responses. Of the rest, 10% withdrew their applications and 30% either failed to respond or provided information that failed to prove their stated income.”
For the uneducated investor, this realization can be quite disconcerting. That is why, at Dealstruck, we value our underwriting process and spend hours verifying that the borrower is indeed who they say they are, and that they are reporting accurate financial information.
MoneyLife also points out that, “P2P lenders also use proprietary ‘black box’ programs to determine a borrower’s credit. A lender who advertises that they can approve a loan in minutes should be suspect. [These l]enders do not have any ‘skin in the game’. They just put borrowers and lenders together and then collect fees. Their incentives are quite distinct from investors just like subprime originators before 2008.”
We recognize that, in order for you to feel secure in your investment decisions, you need 1) access to information; and 2) alignment with the intermediary platform. For this reason, we provide significant documentation to our lenders to educate you on the information we considered in underwriting the loan. In addition, as a direct lender ourselves, Dealstruck also invests in small business loans and trusts our underwriters enough to put our money where our mouth is.
We value your investment and our process, and understand the concerns in the market. This is why responsible lending will differentiate worthwhile platforms over time. If you have any thoughts or questions on our process or the market, let me know!