Updated: Mar 13
Lending Loop Review – Performance Update 2018
Have you ever felt ‘researching’’ what companies to invest in time consuming?
Have you felt whenever you peeked at the financial statements, it made your eyes squirrelly?
Or maybe you don’t care that much. Maybe you wished there was some way to safely invest even while your sleeping?
If you felt this way, I can tell you, you are not alone.
I have gone through all those emotions….but thankfully with Lending Loop’s latest feature – ‘Automated Lending’ …it’s like a trusted little robot lending money out while I sleep and this has worked out pretty well so far.
Auto lending has saved me so much time. I love this new feature!
I define my risk tolerance (which is B+) and boom! -> The platform automatically makes the investments for me.
Like a little robot making investments for me.
It’s easy to talk about how Lending Loop can invest your money and get decent returns while helping local small businesses in your community. It’s a great ‘win-win’….
BUT the proof is in the numbers.
In this article, I’ll share with you:
How my portfolio has done so far.
How well does it work and how many automated loans have I made.
Lessons learned to help you manage risks
Latest features with Lending Loop
I’ve invested 45 small businesses loans since 2015. What I love about it is knowing that I’m helping small businesses grow in Canada. Go Canada!
Here’s a snapshot of where I invested in for 2017 and the average interest rate earned:
I’ve made 32 investments in 2017 plus another 13 loans in 2018. 6 loans have been repaid to date or 15%.
In comparison, Lending Loop has advertised an average rate of return is 8.1%. And 35 loans have been successfully repaid in full to date.
I personally yielded 9.8% average gross yield to date…and 5 loans repaid.
BUT, I had one charged off loan, which means a business stopped paying back the loan and defaulted.
Lending Loop – My Real Returns with a Chargeoff:
I know no one wants to hear this but charged off loans are a grim reality…but they have been rare to date.
Definition of a Chargeoff: Is when a small business defaults in payments and Lending Loop can’t recover the money.
It’s a nicer way of saying that you lost the loan and it will never be given back!
Think of it as charity to make yourself feel better.
When I started in 2015, I made a massive mistake.
Silly me, I momentarily got distracted by all of the shiny returns of grade C loans, and lent out larger payments to riskier businesses and deviated from my rules!
I made a silly loan of 150 dollars to 1 grade C loan. This one loan wiped out a huge chunk of my returns momentarily. Thankfully, with all of the other loans I’ve made to date, I’m on track to yielding 9.8% average gross.
Basically, I had a plan in 2015, then I changed my plan halfway in 2016, which got me into trouble.
If I stuck to a plan consistently my rules of lending out $25 dollar increments, then the largest single loss would have been $25. That’s like no biggie.
But instead, I loaned out money at varying amounts thinking there were a lot more loans that were Grade B and above and without seriously considering the impacts and risks.
I started making a series of $100 loans, then a couple of $150 dollar loans, and then I changed my model halfway because Lending Loop had a lot more loans to offer so I started out lending smaller amounts – > a series of $50 and $25 loans.
I should have either stuck to loaning out $100 – $150 loans all the way.
Or I could have started loaning out $25 loans right from the beginning!
How to Minimize Risk with Lending Loop
I encourage people to invest in many loans to diversify your account to have a big enough cushion to guard against future charge-offs.
And to invest in smaller increments (between $25 and $50) so that no one loan can do damage to your overall returns.
There is always a risk that the businesses might default on payments and lose your money. But sticking to a plan on diversifying loans to many businesses will level out the risks.
Only invest money that you can afford to lose because there will be some losses as this involves risks.
Plus the principle investments you make are illiquid so it will take some time to get all of your money back depending on the loan term.
10 Tips for Investing with Lending Loop
This has been a learning process, and I’m happy that I have a much better understanding of how peer to peer lending works now that I’ve done it since 2015.
Here are some tips from my experience investing with Lending Loop
Ease your way into it. If you’re a cautious, low risk investor like me, and aren’t sure if P2P lending is right for you, start off with A rated loans to get comfortable with the process. You’ll still make decent returns and can diversify into lower rated notes over time.
Higher interest rates are appealing but it also comes with higher risks for borrowers. Diversify with quality loans to reduce your risks.
Watch for and utilize your monthly cash payments. Once you invest in loans that become fully funded and active, borrowers will start making scheduled payments every month that will be deposited into your account. You can then use that cash to invest in more loans or withdraw if needed.
How are the small business borrowers instilling trust with you? Look for a good description of their reasons for their loan. Look for responsiveness to questions in the Q&A forum. And look for full financial statements.
Peer to peer lending loans are still a worthy investment if you have the time to invest researching the individual companies. Things to keep in mind: What is the reputation of the business? Do they have a good brand? Have they been in business for a long time? Are they registered in better business bureau?
Start with a small percentage of your net worth and spread your money out sufficiently. Although these loans are backed by personal guarantees, nothing is guaranteed in life and defaults are a reality.
Be aware of the risks. Peer-to-peer lending is “higher risk” than putting your money in a savings account so if you’re not comfortable with this, it may not be for you.
Start slow with a set budget and give yourself a few months to see how it works.
Carefully review the financial statements. It is a reasonable expectation to see three years’ worth of financial statements when the company has been around for five years so look out for that.
Take advantage of the Q&A forum to learn more about the business. Scour through the Q&A forum to learn more about their business and financials. And if you still have an unanswered question – ask them.
Why Lending Loop is an Attractive Investment
Since the 3 year rate for a guaranteed investment certificate (GIC) is very low… in the range of 2.5% to 3.5% -> it makes Lending Loop an attractive option.
It offers a better interest rate, ranging from 5.9% to 26.5%, which is better than having your money sit in the bank account.
Have you ever looked at your savings account, GIC, stocks, real estate or other investments lately?
Ever noticed they only pay you ‘interest’ payments?? And you never get your principle payments paid out until you sell?
That means you could be risking all of your initial capital until you sell your investment.
Now loaning money out to Lending Loop involves risk too as the borrower may not pay you back.
However, what is different about Lending Loop → you get paid monthly as:
INTEREST + PRINCIPLE …every month!! Until your loan is repaid.
Here’s a quick summary of investment comparisons so you can decide for yourself what is best for you right now.
Latest Feature in Lending Loop – Calling all Corporations
Calling all incorporated business owners: You can now lend out money through your company!
This is a great option if you have lazy money lying around in your company.
As a heads up – investing through your company means you get taxed at a higher rate because its considered passive investing …but at least your money is not sitting idle.
Lending Loop Promo Code
Thanks to Lending Loop for supporting this blog. I am very excited that Canada has embraced peer to peer lending. And I’m so happy to be one of the 20,030 plus investors helping businesses in Canada.
If you want to get started with an account of your own, be sure to hit up my affiliate link to get $25! It is a win-win situation. You get $25 for opening an account with a minimum investment of $1500 and you also help me out by supporting this blog.
If you hit up my affliate link, I want to THANK YOU from the bottom of my heart. Your money will go towards social startup that I’m proudly initiating for University students – Building ‘Confident Courageous Young Girls to Thrive in Life, not just Exams #oneWomanatatime.These fun and live immersive money management workshops for university students will be a powerful catalyst to making these girls unstoppable!