Lending Loop Review – What to Know Before Investing
Lending Loop Performance: Over the past two years, I’ve been fascinated in alternative investment vehicles other than buy and hold real estate and stocks.
Real estate investment has been great to me but I want to diversify and have more short term investments.
I have a small stake in stocks but the stock market keeps reaching higher highs, and it’s getting very expensive so I don’t really want to invest in more.
So I was very excited when I heard peer to peer lending was relaunching in Canada, which suggests that Canada is coming to terms with peer to peer lending models which are already popular in the US, Europe and elsewhere.
My experiment started with Lending Loop, the first peer to peer lending platform in Canada.
The company received the green light from the Ontario Securities Commission after a brief pause to meet securities compliance. Lending Loop is now a registered dealer in every province and territory, but not currently available to investors in Quebec
I am happy to report on my performance to help you make an informed decision lending with Lending Loop.
Peer-to-peer lending like Lending Loop maybe a viable option for you as it is for me if you take the time to understand the risks and rewards. If this sounds like you, read on.
Lending Loop Promo Code
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.
Lending Loop – How it works
Lending Loop is really crowd sourcing funds where they match lenders to small business borrowers.
Lending Loop effectively turns anyone who wants to be one into a bank. Individuals can sign up to become investors in small businesses, who in turn come to Lending Loop looking for loans.
And the best part is you can invest as little as $25, where you own a small part of a business note and rewarded with a healthy return.
And you collect monthly interest plus a bit of principle back until the borrower pays off their loans. And a double win is that you support the growth of local Canadian businesses!
In turn, small businesses can access affordable financing at a fair interest rate and gain exposure to lenders across Canada.
Lending Loop – Returns
Last year, my goal was to spread $1000 over 10 different loans such that even if there is an occasional default, it is very unlikely that I will get a negative return overall.
To date, I’ve almost reached my $1000 goal. I’m happy to report that I’ve received many monthly payments and so it has met expectations. I’ve already boosted my investment account to diversify my loans even more, focusing on quality loans so that if I get a charge-off on a loan, it won’t impact my overall returns.
So far, I’ve hit 8.0% (after Lending Loop fees) which is far greater than the <1% that I was earning in savings.
My performance is also aligned with Lending Loop’s estimated yield for 2017:
Delinquent Loans Is A grim reality and Key Lessons Learned
I know no one wants to hear this but delinquent loans are a grim reality.
So far, none of my loans have been charged off, and I have 1 loan that is delinquent.
I have a loan that is delinquent in the C rated loans and this is also aligned with Lending Loop’s statistics for going into arrears more often that A rated loans.
I plan on investing in many more loans to diversify my 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 my overall returns.
I’ve come to terms that there will always be businesses out there who don’t survive and pay out their loans. It’s just a part of doing business.
Here is the expected charge-off rate according to Lending Loop so you can decide.
A lesson learned is to take advantage of the $25 minimum investment so that you have many more loans (ex: $25 over 40 loans with a $1000 account). If you invest with $200 per loan with only five loans, this carries a higher risk because one default could wipe out most of your investment gains.
Another lesson learned is there are a limited number of grades A and B loans so it might be harder to diversify than I thought so keep this in mind if you are only loaning out to grade A and B loans. You might not have 40 loans to diversify with. I might have to modify my plan if this continues as so.
How to Decide if you Want to Invest in Lending Loop?
Do you want a bit of income every month or do you want it generate a lot of wealth in the future, which are two different goals.
Lending loop is a good potential income generator, not a wealth building generator,
But a word of caution: don’t be distracted by the high returns and fail to properly assess the risks vs rewards.
Only invest money that you can afford to lose because there will be so